Allowed

State Bank of India v. Emerald Mineral Exim Private Limited And Anothers

DRAT6 Sept 2024REGULAR APPEAL/28/2019

Case brief

AI extract

What is this about?

The Debts Recovery Appellate Tribunal allowed the appeal of State Bank of India, setting aside the impugned judgment of DRT Cuttack. The Tribunal held that the DRT lacked jurisdiction to scrutinize findings of a Section 19 RDB Act order filed between the same parties and remanded the matter for fresh consideration.

What did the court decide?

Impugned judgment dated 08.02.2019 set aside; matter remanded to Learned DRT to decide afresh.

State Bank of India versus Emerald Mineral Exim Private… — Banking and Recovery | DRAT (2024)

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Reportable/ Not Reportable

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT KOLKATA

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(Appeal No. 28 of 2019)

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(Arising out of S.A. No. 7 of 2017 in DRT – Cuttack)

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THE HON’BLE MR. JUSTICE ANIL KUMAR SRIVASTAVA

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CHAIRPERSON

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State Bank of India, a body corporate, constituted under the State Bank of India Act, 1955 having its Head Office at State Bank Bhavan, 8^th Floor, Madam Kama Road, Mumabai-4000 21 and is branch office at Stressed Asset Management Branch-I, Nagaland House (8^th Floor), 11 & 13 Shakespeare Sarani, Kolkata – 700071, West Bengal.

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…Appellants

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-Versus-

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1. Emerald Mineral Exim Private Limited, having its Registered Office at Mastan Road, P.O. Buxi Bazar, Cuttack – 753001, Odisha, and also of suite No. 202 & 203, Jasmine Towers, 31, Shakespeare Sarani, Kolkata – 700017, West Bengal.

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2.	Mohammed Javed Sultan, Residing at Plot No. 55/1877, Bhagwat Hovels, Patrapada, Bhubnaneshwar – 751019, Odisha.
	… Respondents
	Counsel for the parties Mr. Joy Saha, Learned Senior Advocate, Mr. Debasish Chakrabarty, Learned Counsel for the Appellants
	Md. Javed Sultan, in person for Respondents
JUD	GMENT : On 6^thSeptember, 2024

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THE APPELLATE TRIBUNAL :

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Instant Appeal is preferred against a judgment and order dated 08.02.2019 passed by Learned DRT Cuttack allowing the S.A No. 07 of 2017 (Emerald Mineral Exim Pvt. Ltd. and others versus State Bank of India and anr.)

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2. As per pleadings of the parties, an application under Section 17 of the SARFAESI Act, 2002 (hereinafter referred to as the Act) was filed by Emerald Mineral Exim Pvt. Ltd. and its Managing Director Md. Javed Sultan against the Appellant herein State Bank of India. It is stated that the SARFAESI Applicants are the Bank customers since 2007. Cash Credit Limit of Rs. 6 crore was sanctioned by the Bank and Letter of Credit of Bank Guarantee limits of Rs. 3 crore and Rs. 2 crore total Rs.11 crore was sanctioned. These facilities were further renewed vide letter dated 28^th December, 2010. Bank granted aggregate fund and non fund based credit facility of Rs. 30.74 crores. Apart from it, a separate bill discounting limit of Rs. 5 crore was also granted. It is stated that the SARFAESI Applicants entered into two contracts dated 04.03.2008 and 11.07.2008 with one Era Infra Engineering Limited for selling iron Ore fines to the Era Infra, payment for which would be made by inland Letters of Credit. Accordingly, six letters of credit to be established in favour of the SARFAESI Applicants through ICICI Bank Limited were established. Details of the same are as under:

Letter of Credit No.

Dated

Amount

0071LC118808 0071LC116308 0071LC127908 0071LC128008 0071LC134508 0071LC138008

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03.06.08 6,04,90,300/22.05.08 7,36,70,828/26.07.08 1,72,36,799/28.07.08 3,45,88,781/28.08.08 2,18,85,962/12.09.08 2,44,34,760/-

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3. All the six letters of credit were duly discounted by the Appellant Bank. Valuable letters of credit dated 3^rd June, 2008, 22^nd May, 2008 and 26^th July, 2008 were duly collected by the Bank. It was informed vide letter dated 26.03.2009 by the Bank that Bank had not collected the value of letter of credit dated 28.07.2008, 28.08.2008 and 12.09.2008 aggregating Rs. 8,09,09,503/-. It was further communicated by the Bank vide letter dated 05.06.2009 addressed to the ICICI Bank Limited that the Bills would be crystalised in the Applicants account if it did not receive payment within two working days. It was objected by the SARFAESI Applicants vide letter dated 18.06.2009. It is stated that the Bank failed and neglected to recover the amount of the letters of credit from ICICI Bank. Bank is responsible for non realization of the amount. But the Bank in June and July, 2009, illegally debited the SARFAESI Applicant’s Account with Rs 8,09,09,503/- with interest of Rs. 43,24,312/-. The State Bank neglected to protect and safeguard the interest of the SARFAESI Applicant.

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4. A Writ Petition (c) No. 9916 of 2009 was filed by the SARFAESI Applicant before the Hon’ble Delhi High Court which was subsequently withdrawn. In the meantime, proceedings under Section 9 of the Arbitration and Conciliation Act 1996, were initiated by the Era Infra against the SARFAESI Applicant as well as ICICI Bank Limited before the Hon’ble Delhi High Court which was dismissed. Thereafter, ICICI Bank made a payment of Rs.4,63,20,722/- under the letters of credit dated 28^th August, 2008 and 12^th September, 2008 to the State Bank of India with a delay of 209 days and 212 days without paying any interest. Bank debited an amount of Rs.22,87,869/- on 16.07.2009 on account of delayed payment of letter of credit dated 28^th August, 2009 and Rs.20,36,443/- on 6^th July, 2009 under the letter of credit dated 12.09.2009. State Bank debited the SARFAESI Applicants Cash Credit Account for Rs.4,06,11,224/- being the unrealized value of the letter of credit dated 28^th July, 2009. SARFAESI Applicant under compulsion created a Working Capital Term Loan account of Rs. 4.40 crore carrying interest @ 16.5% repayable in quarterly instalments of Rs. 25 lacs each. Bank has illegally collected an amount of Rs. 1,35,00,000/- towards principal and Rs.99,32,873/- towards interest. 5. It is further stated that the SARFAESI Applicant was not liable to pay an amount of Rs. 2,34,32,873-. Rather, he is entitled for credit of the same amount with interest. A

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counter claim was also made by the SARFAESI Applicant in the arbitration proceedings for recovery of his dues. Arbitration proceedings are pending final adjudication. SARFAESI Applicant has incurred huge losses and expenses for prosecuting the proceedings and he is entitled for recovering the same from the Bank. 6. On 27.04.2015 a letter was issued by the Bank intimating that Bank has approached the DRT-3 Kolkata for recovery of its dues and an O.A. under Section 19 of the Recovery of Debts and Bankruptcy Act has been filed. An exparte order dated 29.04.2015 was passed by the Learned DRT-3 Kolkata directing that award if any, be paid directly by way of a Demand Draft in favour of the Bank. 7. Vide letter dated 28.01.2011, SARFAESI Applicant instructed the Bank to remit USD 40044.67 to its buyer vide Dragon Overseas Limited Hongkong on account of refund of excess consideration received from the letter which was remitted by the Bank for an aggregate sum of USD 12013401. Applicant called upon the Bank on 17.06.2011 to reverse the wrongful debt of USD 80089.34. But the reversal was not done rather, interest and charges were debited by the Bank. Applicant is not liable to pay the amount of USC 80089.34. An overdraft facility of Rs.49140,00/- was granted against the short term deposit receipt of Rs. 5.46 crore. Applicant was to pay interest @1% over and above the fixed deposit rate for overdraft facility. Bank wrongfully realized Rs.29,48,400/- as interest.

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On 07.05.2010, Applicant asked the Bank to encash the fixed deposit receipts and liquidate the overdraft account. But Bank continued with the overdraft account till 05.01.2012 and illegally realized Rs. 90,80,169/- on account of interest. Applicant was also denied the use of its funds in the sum of Rs. 114,00,000.

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8. Vide sanction letter dated 28.12.2010 Applicant was entitled for usance period of 180 days for payment of the letter of credit but he was compelled to accept a significantly reduced usance period of 60 days only. 9. SARFAESI Applicant suffered great losses due to suspension of mining license and ban on trading of iron ore. Stock of the SARFAESI Applicant was also checked by the Bank authorities from time to time. Vide letter dated 14.01.2012, Bank informed that the accounts have been classified as NPA in its book as on 31^st December, 2011 which is illegal and not in accordance with the guidelines of the Reserve Bank of India. On the same date i.e. 31.12.2011, an amount of Rs. 10,89,600/- was deducted from the account as loan processing charges for renewal of credit facilities.

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10. Notice under Section 13(2) of the SARFAESI Act was issued on 14.03.2012 showing an amount of Rs.29,21,31,563.41 as due which was wrongly issued. Mandatory provisions of SARFAESI Act and Rules were not followed. Appellants bonafidely wants to repay the dues of the Bank legally payable by him. Reply of the Applicant

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letter dated 16.03.2012 was sent by the Bank on 28^th May, 2012 on the basis of incorrect facts.

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11. Request for restructuring the account was wrongly refused. Notice under Section 13(4A) was issued on 16^th May, 2014. It was communicated on 02.09.2014 that symbolic possession was taken by the Bank.

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12. Applicant protested the actions of the Bank on 27.09.2014 but no response was given. Bank has initiated proceedings under Section 14 of the SARFAESI Act illegally. A prayer was made to restrain the Bank from proceeding further in the Miscellaneous case No. 03 of 2015 before the District Magistrate Kharda under Section 14 of the SARFAESI Act. Further, Bank be restrained to proceed further in view of the notice under Section 13(2) and 13(4) of the SARFAESI Act.

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13. Restructuring of the accounts were refused by the bank. Notice u/s 13(4)(a) of the Act was issued on 16.05.2014. Subsequently, it was communicated by letter dated 02.09.2014 that symbolic possession of the secured assets was taken by the bank on 28.08.2014 and 29.08.2014.

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14. Action of the bank was protested by the SARFAESI applicants. They claimed Rs.29,28,59,124.82 for loss and damages suffered by them.

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15. The counter claim for Rs.29,28,59,748.82 was also filed by the SARFAESI applicants in the O.A. proceeding initiated by the bank. O.A. 1267 of 2014 was disposed of by the

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learned DRT-III Kolkata on 02.04.2018 wherein counter claim of the SARFAESI applicants was allowed to an extent of Rs.13,65,44,135.12 including an amount of Rs.5.00 crore as compensation. In the O.A. proceeding claim of the bank was reduced to Rs.19,06,00,000.00.

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16. It is further stated that the bank without the approval of learned DRT-III Kolkata or DRT Cuttack has closed all the loan accounts, CC, EPC and WCTL on 17.06.2016 and transferred the same to AUCA account bearing no. 34520164294, which was against the law.

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17. It is further stated that balance of cash credit (CC) account as on 22.04.2014 bearing no.30347231781 was transferred to AUCA account for Rs.15,07,04,432.00, but the balance on the same day in the C.C. statement of account was Rs.12,28,50,954.00. There was discrepancy in the CC account which could not be explained by the bank.

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18. Likewise, there was discrepancy in the Export Packing Credit (EPC) account bearing no. 31112369685 as on 17.06.2016. Rs.3,04,30,400.00 was transferred to AUCA account bearing no. 34520164294 from the EPC account, but the balance shows in the EPC statement of account is ‘zero’ and the reply filed by the bank before Tribunal on 17.12.2017 shows EPC balance was Rs.10,00,00,000.00.

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19. Likewise, there were discrepancies in the Working Capital Term Loan (WCTL) account that too have not been explained by the bank. It is further stated that there is discrepancy in the AUCA account number mentioned in the

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CC, EPC and WCTL account statement filed by the bank on 22.03.2018 before the learned DRT Kolkata and on 17.12.2017 and 30.05.2018 before the learned DRT Cuttack is 0098533041512 while the AUCA account number mentioned in the bank’s reply was 34520164294. It is further stated that order obtained in the O.A. proceeding was against the law. Account was wrongly classified as NPA as Rs.1,09,600.00 was debited from the CC account as loan processing charges for extension of credit facilities on existing level for the period from 28.12.2011 to 27.12.212.

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20. An amount of Rs.2,30,16,000.00 received by the bank on 28.03.2013, but the same was not credited in the EPC account no.31112369685 until 17.06.2016, but thereafter credited without interest. Interest at the rate of 18% should be given on that account.

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21. Reply was filed by the bank stating that O.A. was decided by learned DRT-III Kolkata on its own merit. Defendants in the O.A. did not file any appeal against the judgement dated 02.04.2018. Even no application for review or modification was filed. Accordingly, the defendants have accepted the judgement passed by learned DRT-III Kolkata. SARFAESI applicants in the guise of filing application u/s 17 of the SARFAESI Act is making a plea to get the judgement and order passed by learned DRT-III Kolkata in O.A. proceeding set aside. It is not legally permissible. Any adjustment of account if ordered in the

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S.A. proceeding would not amount to nullifing the order passed in the O.A. proceeding.

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22. Bank also states that principles of res-judicata are applicable in the proceeding. The ground taken by the SARFAESI applicants that they came to know about the AUCA account only after 02.04.2018, that is the date of delivering the judgement in O.A. proceeding, which could be the ground for adducing additional evidence in appeal against the judgement in O.A. proceeding. But, in the S.A. proceeding such an adjustment is not permissible under law.

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23. It is further stated that SARFAESI applicants can also move an application for review, but neither any appeal nor review petition is filed by the SARFAESI applicants.

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24. It is further stated that in the downloaded copy of CC & EPC statement of account from 01.04.2012 to 31.03.2018 certain transactions were missing after the date of judgement passed by learned DRT-III Kolkata i.e. 02.04.2018. The cause of action as alleged by the SARFAESI applicants has arisen before the decision of the O.A. proceeding. Details of legal expenses or damages of Rs.54.00 lakhs on account of loss of rental value have not given and not supported by any evidence. The question of accounting calculation can only be looked into in the O.A. proceeding. Such calculation is not permissible in a proceeding u/s 17 of the SARFAESI Act, 2002.

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25. It is further stated that transferring of amount from a closed loan account to a separate account, namely AUCA

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account, is an internal mechanism of the bank. It is in fact internal accounting procedure. Such transfer of amount is not disputed either by the borrower company or its guarantor. Zero balance reflected in the statement of original account opened at the time of disbursement of loan. It does not mean to say that borrower company or its guarantors have deposited the money with the loan account of the bank. Liability of the borrower company will continue with the balance amount outstanding in the loan account.

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26. Substantial amount is due and receivable to the bank. Hence, no question of releasing the receivable amount arises. Bank has proceeded under SARFAESI Act in accordance with law.

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27. Judgement of O.A., delivered by the learned DRT-III Kolkata, is challenged in appeal in the DRAT, Kolkata which is sub-judice. Statement of account was filed before learned DRT-III Kolkata on 22.03.2018 wherein transfer of account to AUCA account has already been intimated by the bank.

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28. It is further stated in the reply that loan account was maintained in accordance with the guidelines. It is further stated that in the S.A. relief for quashing notices u/s 13(2) and 13(4) of the Act was sought rather it was sought after amendment. The relief regarding Rs.10,89,600.00; Rs.6,52,30,287.00; Rs.4,65,53,600.00 and Rs.1,86,76,687.00 has also been considered by the learned DRT-III Kolkata in the O.A. proceeding and judgement was delivered.

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29. As regards relief VI is concerned it relates to a claim received from ECGC wherein bank has to refund the same to ECGC after recovering the money from the borrower. Borrower cannot claim any right over it. Further, this issue cannot be reagitated in the S.A. proceeding.

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30. No damages can be granted to the applicants since huge amounts which are payable to the bank by the SARFAESI applicants against collateral securities which cannot be released. Accordingly, S.A. is liable to be dismissed.

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31. After hearing learned counsel for the parties, learned DRT-Cuttack recorded its findings that when in the statement of accounts, the balance is shown as “zero”, then how the bank is taking steps under the Securitization Act and demanded huge amounts from the applicant. Another finding is recorded that statement of accounts are not showing any debit balance, then how the bank calculated the amounts and demanded huge amount and initiated proceedings under SARFAESI Act. Another finding is recorded that no evidence is brought on record to show that bank is entitled to transfer the amounts from one account to AUCA account. Further, the bank has transferred the amount to AUCA account without permission of the Tribunal. A general observation is made that banks are settling such type of loan accounts under OTS scheme with minimum settled amount, but they are not taking interest to close the loan accounts. Another finding is recorded that statement of

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accounts are altered by the bank. How the bank renewed the credit facilities and debited the charges.

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32. A very cryptic finding is also recorded that the Principles of constructive res-judicata are not applicable in the case. Another finding is recorded that there are no dues against the applicants rather substantial amount is receivable from the bank by the applicants. Since there is no due payable to the bank the mortgaged collateral securities should be released. Classification of NPA was held to be bad. Consequently, impugned order was passed by the learned DRT.

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33. I have heard Mr. Joy Saha, Ld. Senior Advocate, for the appellant and Md. Javed Sultan, in person, for the respondent and perused the records.

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34. At the very outset learned Counsel for the appellant would submit that impugned order suffers from material illegality and irregularity. It is submitted that learned DRT Cuttack has erred in recording its finding, as if DRT Cuttack is scrutinising the judgement passed by learned DRT-III Kolkata in O.A. proceeding as an appellate authority. Learned DRT has no jurisdiction to re-assess or reappreciate the judgement passed by learned DRT-III Kolkata in O.A. proceeding. It is further submitted that when a recovery certificate was issued by a competent Court having jurisdiction, then only the Appellate Tribunal or any higher Court can reappreciate the judgement passed by the Court below. It is further submitted that respondents have not

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filed any review petition before the learned DRT-III Kolkata. Learned DRT Cuttack has directly as well as impliedly set aside the judgement of DRT-III Kolkata passed in O.A. proceeding while deciding an application filed u/s 17 of the Act, which is against the law.

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35. It is further submitted that even if it is accepted for the sake of argument that respondents came to know about the AUCA account subsequent to 02.04.2018, that is the date of judgement passed in O.A. proceeding, then they could have been well advised either to go for an appeal before the Appellate Tribunal or to file a review petition, but in no manner DRT Cuttack has any jurisdiction to set aside or overrule the finding recorded by the competent Tribunal in a proceeding filed u/s 19 of the Recovery of Debts and Bankruptcy Act, 1993.

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36. Learned counsel for the appellant strongly argued that principles of res-judicata u/s 11 CPC would be applicable. Jurisdiction of DRT Cuttack is specifically barred by the principles of Res-judicata. Explanation (iv) and (v) of Section 11 CPC are put into service by the learned counsel for the appellant.

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37. It is further argued that an appeal is filed by the appellant bank against the judgement of learned DRT-III Kolkata passed in O.A. proceeding wherein no cross appeal is filed by the respondents challenging the judgement dated 02.04.2018.

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38. It is vehemently argued that even from the amended part of the S.A. it reveals that respondents have no knowledge about the AUCA account before passing of the judgement in O.A. proceeding on 02.04.2018, but no effort was made to go for any amendment or initiate any proceeding after the judgement of O.A. It was further argued that as far as transfer to the AUCA account is concerned, liability of the borrower remains intact even after transfer to AUCA account. It is an internal mechanism of the bank under the guidelines of the RBI letter dated 19.11.2015, which in no manner can be treated that the borrower without making any payment is absolved from his liability of payment of dues.

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39. Learned DRT has exceeded its jurisdiction while deciding the application filed u/s 17 of the Act. Scope of Section 17 of the Act is very limited, it does not empower the DRT Cuttack to overrule the finding recorded in a proceeding u/s 19 of the Act of 1993. Section 17 of the Act empowers the DRT to examine as to whether the provisions of the Act and Rules of 2002 have been complied by the secured creditor or not and if not, what relief can be granted to the borrower or guarantor?

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40. It is also submitted that all the issues raised by the SARFAESI applicant by way of amendment u/s 17 of the Act have already been dealt with by the learned DRT-III Kolkata in O.A. proceeding. Thus, these issues could not and should not have been re-agitated in Section 17 application.

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41. It is further submitted that appellants have followed necessary procedures in accordance with law as required under SARFAESI Act. The impugned order is liable to be set aside.

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42. Respondent in person argued that the Learned DRT has passed the judgment in accordance with law. It is submitted that different interim orders were passed by the Learned DRT which orders were not challenged and are having binding effect on the DRT. At the very outset these arguments cannot be accepted as it is settled legal proposition that all the interim orders passed pending litigation are merged in the final order.

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43. It is further submitted that the Accounts, which were transferred to the AUCA accounts, have not been placed before the Learned DRT -3 Kolkata in O.A. proceedings. In the O.A. proceedings, the Learned DRT passed the order without the assistance of the secured creditor as far as AUCA account is concerned. Secured creditor has not placed the AUCA account before the Ld. DRT-3 Kolkata in O.A. proceedings.

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44. Respondent has further argued that the different accounts of the secured creditor became nil. Accordingly, the impugned judgment was passed by the Learned DRT granting compensation to the Respondents. An effort is also made to challenge the O.A. proceedings and the judgment passed in the O.A. proceedings by the Learned DRT-3

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Kolkata. An effort is also made for accounting in the different accounts.

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45. However, as far as the issue of res judicata is concerned, it is submitted that the principles of res judicata would not be applicable in the case. It is further argued that the Learned DRT Cuttack has based his findings nullifying the findings of Ld. DRT-3 Kolkata in O.A. proceedings. Accordingly, impugned order needs no interference. 46. At the very outset, we have to see as to what is the scope of Section 17 of the SARFAESI Act? Impugned order is passed by the Ld. DRT Cuttack in a proceeding under Section 17 of the SARFAESI Act, 2002 wherein grounds taken are that the money as claimed as due and outstanding is not legally due. Classification of the account as NPA was wrong. Steps taken by the secured creditor under Section 13(2) and 13(4) and 14 of the SARFAESI Act, 2002 are against law. Thereafter, generalized ground regarding validity of the action of the secured creditor are taken. Another ground is taken that transfer of the balance of all the loan account i.e. C.C.(Cash Credit), E.P.C. (Export Packaging Credit) and W.C.T.L (Working Capital Term Loan) to AUCA account without prior permission of the Tribunal is illegal, unjust and arbitrary.

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47. Legislative history and scheme of the SARFAESI Act is duly explained by the Hon’ble Apex Court in Authorised Officer, Central Bank of India Versus Shanmugavelu (2024) 6 SCC 641 wherein a three judges Bench of the Hon’ble

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Apex Court has dealt with the legislative history and scheme of the SARFAESI Act. Hon’ble Apex Court also placed reliance upon Merdia Chemicals Limited and others versus Union of India and others (2004) 4 SCC 311, United Bank of India versus Satyawati Tondon & Others (2010) 8 SCC 110, Agarwal Tracom Pvt. Ltd. versus Punjab National Bank and others (2018) 1 SCC 626. Hon’ble Apex Court has held that-

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“Section 17(2) empowers the Tribunal to examine all the issues arising out of the measures taken under Section 13(4) including the measures taken by the secured creditor under Rules 8 and 9 for disposal of the secured assets of the borrower. The expression “provisions of this Act and the Rules made thereunder” occurring in sub-sections (2), (3), (4) and (7) of Section 17 clearly suggests that it includes the action taken under Section 13(4) as also includes therein the action taken under Rules 8 and 9 which deal with the completion of sale of the secured assets. In other words, the measures taken under Section 13(4) would not be completed unless the entire procedure laid down in rules 8 and 9 for sale of secured assets is fully complied with by the secured creditor. It is for this reason, the Tribunal has been empowered by Sections 17(2), (3) and (4) to examine all the steps taken by the secured creditor with a view to find out as to whether the sale of secured assets was made in conformity with the requirements contained in Section 13(4) read with the Rules or not?”

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48. It was further held that the expression “Any of the measures referred to in Section 13(4) taken by the secured creditor or his authorized officer” in Section 17(1) would include all actions taken by the secured creditor under the Rules which relate to the measures specified in Section 13(4) of the SARFAESI Act, 2002.

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49. In PHR Invent Educational Society Versus UCO Bank and others (2024) 6 SCC 579, a three judges Bench of the Hon’ble Apex Court has referred to judgment of Dr. M.V.

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Ramana Rao Vs UCO Bank and others (2022) SCC OnLine T.S. 3479 wherein it was held that Section 17 of the SARFAESI Act provides that-

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“any person including a borrower who is aggrieved by the action of the secured creditor under Section 13(4) of the SARFAESI Act may file an application thereunder.”

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50. Scope of Application under Section 17 of the SARFAESI Act is wide enough to challenge any measure undertaken by the secured creditor under Section 13(4) of the SARFAESI Act. It is specifically provided in Section 17(2) of the SARFAESI Act that-

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“The Debt Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the Rules made thereunder.”

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51. At this stage, it would be appropriate to refer the provisions of Section 13(4) of the SARFAESI Act which is as under:

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(4) “In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-

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(a) 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;

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(b) Take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset: Provided that the right to transfer by way of lease,

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assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:

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Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;

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52. A bare perusal of the provisions would show that the Learned Debt Recovery Tribunal has to act as per the provisions of Section 17(2) of SARFAESI Act in deciding the SARFAESI application filed under Section 17(1) of the Act. Debt Recovery Tribunal has to confine itself to exercise its jurisdiction as per Section 17 of the Act.

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53. At this stage, it would be appropriate to mention that the Learned DRT -3 Kolkata had decided an O.A. filed by the secured creditor against the borrower/ guarantor under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993. O.A. was decided on 02.04.2018. Application under Section 17 of the SARFAESI Act was filed on 21.05.2015 for restraining the secured creditor to take coercive steps in accordance with the orders of the Ld. District Magistrate Kharda passed under Section 14 of the SARFAESI Act. A further relief was sought to restrain the secured creditor from taking coercive steps pursuant to notice under Section 13(2) and 13(4) of the Act. It would be relevant here that no relief to quash the notice under Section 13(2) and 13(4) of the Act was sought in the original SARFAESI application.

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54. O.A. No. 720 of 2014 (arising out of O.A. No. 1267 of 2014 State Bank of India versus Emerald Mineral Exim Private Limited and others) was filed by the secured creditor against the borrower/ debtor which was allowed by the Ld. DRT -3 Kolkata on 02.04.2018. It is not in dispute that the Ld. DRT-3 Kolkata was the competent Tribunal having

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jurisdiction to decide the O.A. filed under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993.

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55. As far as issue of scope of DRT Cuttack to decide the application under Section 17 of the SARFAESI Act is concerned, a bare perusal of the impugned judgment will show that the Learned DRT Cuttack has proceeded on an assumption that it has jurisdiction to scrutinize the findings recorded by the Ld. DRT-3 Kolkata in deciding the O.A. under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993. Ld. DRT Cuttack had no jurisdiction either to scrutinize or to look into the validity of the findings recorded by the Learned DRT-3 Kolkata. Proceedings under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 are independent to the proceedings under Section 17 of the SARFAESI Act. Section 17 of the SARFAESI Act nowhere empowers the DRT to look into the validity or legality in a judgment passed by DRT of concurrent jurisdiction under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993.

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56. At this stage, it would be relevant to refer the provisions of Section 11 of Code of Civil Procedure, 1908. Section 11 of Code of Civil Procedure reads as under:

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Res judicata . – No Court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a Court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such Court.

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57. Hon’ble Apex Court in State of Karnataka versus (2006) 4 SCC 683 held that the main purpose of Section 11 Code of Civil Procedure is that once a matter has been determined in a former proceeding, it should not be open to parties to reagitate the matter again and again. Section 11 Code of Civil Procedure recognizes this principle and forbids a Court from trying any suit or issue which is res judicata recognizing both “cause of action estoppel” and “issue estoppel.”

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58. It was further held that Section 11 Code of Civil Procedure, 1908 provides that only those matters that were directly and substantially an issue in the previous proceedings will constitute res judicata in the subsequent proceedings.

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59. Hon’ble Apex Court has further placed reliance upon Henderson versus Henderson All ER Rep. 378 wherein it was held that the plea of res judicata applies except in a special case not only but points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment but to every point which properly belonged to the subject of litigation and which the parties exercising reasonable diligence might have brought forward at the time.

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60. In National Confederation of Officers Association of Central Public Sector Enterprises and others versus Union of India and others (2022) 4 SCC 764, it was held that Section 11 of the Civil Procedure Code embodies the principles of res

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judicata and bars the Court from deciding issues which have been directly or substantially an issue in an earlier proceeding upon the same party or parties claiming under the same title and have been finally decided.

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61. O.A. No. 720 of 2014 (old O.A. No. 1267 of 2014) was decided by Ld. DRT-3 Kolkata which was filed under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993. O.A. was filed between the same parties as are in the S.A. proceedings. O.A. was finally heard and decided by Ld. DRT-3 Kolkata which was a competent Tribunal to decide the issue. The findings recorded by the Learned DRT-3 Kolkata are subject to decision of Appeal No. 107 of 2018 filed by the State Bank of India, the secured creditor. But the findings of O.A. proceedings in no manner can be distinguished or set aside or scrutinized by the Learned DRT Cuttack in a proceeding under Section 17 of the SARFAESI Act. Ld. DRT Cuttack had no jurisdiction to enter into the merits of the findings recorded by Ld. DRT -3 Kolkata in the O.A. proceedings. Any such effort of Ld. DRT Cuttack would be against the law and jurisdiction of Ld. DRT Cuttack which cannot be permitted in law.

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62. Whole judgment of the DRT Cuttack is based upon the reappreciation of evidence of O.A. Proceedings which should have been done by the Ld. DRT-3 Kolkata in the O.A. proceedings. Jurisdiction of Ld. DRT Cuttack was limited to an extent provided by Section 17 of the SARFAESI Act, 2002 wherein as has been referred above DRT can only see about

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the legality and validity of the steps taken by the secured creditor under Section 13(4) of the SARFAESI Act. Respondents have utterly failed to show any provision of law wherein Ld. DRT Cuttack has jurisdiction to see the validity or legality of the findings of Ld. DRT-3 Kolkata in O.A. proceedings. Accordingly, judgment of DRT Cuttack is bad in law on two counts. Firstly, it is barred by principle of res judicata. Secondly, DRT Cuttack had no jurisdiction to scrutinize or reason the validity of judgment passed by DRT III Kolkata in O.A.

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63. An issue is raised by the Respondent about transfer of the three accounts to AUCA account by the secured creditor. It is submitted that when the balance in all the three accounts was shown as zero, then how a Recovery Certificate under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 can be issued. Again, this issue relates to the jurisdiction of the Ld. DRT-3 Kolkata in the proceedings under Section 19 of the Act. A plea is taken that the Respondent came to know about this fact when statement of Account was filed by the secured creditor in the S.A. proceedings. Even if it is accepted for the sake of arguments that this fact came to the notice of the Respondent after decision of the O.A. proceedings, even then, it does not create any right in favour of the Respondent to invoke the jurisdiction of DRT Cuttack to scrutinize the findings of O.A. proceedings. Respondent could have very well availed the remedies available to him in

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accordance with law. But in no manner transfer of the account to AUCA accounts whether it was legal or illegal, or in accordance with Rules or against the Rules, could not be looked into by the Ld. DRT Cuttack when the Ld. DRT-3 Kolkata having jurisdiction over the matter has finally decided the issue. The findings of the Ld. DRT-3 Kolkata shall operate as res judicata.

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64. Judgment of the Learned DRT is based upon a finding that the Respondent Bank miserably failed to show that the amount as shown in Notice under Section 13(2) of the SARFAESI Act is due against the Respondents. Transfer of the Account to AUCA Account and further when the balance in all the accounts was zero how the Bank can proceed under the SARFAESI Act and Recovery of Debts and Bankruptcy Act. On this count Learned DRT allowed the SARFAESI Application and a compensation was also granted in favour of the Respondents. As far as question of granting of compensation is concerned, no doubt law provides for grant of compensation in appropriate cases under Section 19 of the SARFAESI Act. But before granting compensation, Learned DRT has to satisfy himself that taking over of the possession by the secured creditor is not in accordance with the provisions of the SARFAESI Act. Thereafter compensation can be granted. Learned DRT has proceeded on presumption that it has jurisdiction to enter into a field which is prohibited by law. Learned DRT encroached upon its jurisdiction to reassess and reappreciate the issues which

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should have been pleaded and proved in the proceedings under Section 19 of the Recovery of Debts and Bankruptcy Act. Accordingly, the compensation granted by the Learned DRT Cuttack is against law.

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65. I.A. No. 388 of 2024 an application under Order 41 Rule 27 filed by the Respondent for bringing additional evidence on record. Additional evidence relates to the proceeding relating to NCLT proceedings which were pending before the Hon’ble NCLT Cuttack and further orders of the Company Law Tribunal. An additional ground is taken about certain allegations against the then Presiding Officer of DRT3 Kolkata that his kin was appearing before him. As far as admissibility of additional evidence and the effect of NCLT proceedings are concerned, since the matter is being remanded back to the Learned DRT, this matter is kept open. Learned DRT would be at liberty to decide the issue after hearing the Learned Counsel for the parties in accordance with law.

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66. On the basis of discussion made above, I am of the considered opinion that the Learned has erred in passing the impugned judgment. Accordingly, appeal is liable to be allowed and the matter is to be remanded back to the Learned DRT to decide it afresh in accordance with law in view of the observations made in the body of the judgment.

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ORDER

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Appeal is allowed. Impugned judgment and order dated 08.02.2019 passed by Learned DRT Cuttack in S.A No. 07 of 2017 (Emerald Mineral Exim Pvt. Ltd. and others versus State Bank of India and anr.) is set aside. Matter is remanded back to the Learned DRT to decide it afresh in the light of the observations made in the body of the judgment in accordance with law. An opportunity of hearing should be afforded to the parties. Parties are directed to appear before the Learned DRT on 6^th November, 2024.

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No Order as to costs.

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File be consigned to Record Room.

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Copy of the order be supplied to Appellant and the Respondents and a copy be also forwarded to the concerned DRT.

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Copy of the Judgment/ Final Order be uploaded in the Tribunal’s Website.

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Order signed and pronounced by me in the open Court on this the 6^th day of September, 2024.

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(Anil Kumar Srivastava,J) Chairperson