Dismissed

Rr Infopark Pvt. Ltd. v. Asset Reconstruction Company (India) Limited

DRT9 Jan 2023SA/434/2022

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal dismissed an application filed under Section 17 of the SARFAESI Act challenging a debt recovery auction notice. The court rejected pleas regarding IBC pendency, inadequate debt percentage, and limitation. It held the sale notice was legal and dismissed the petition.

What did the court decide?

Sale Notice dated 31.10.2022 and proposed auction are upheld; Application for quashing is dismissed.

Rr Infopark Pvt. Ltd. versus Asset Reconstruction Company… — Banking and Recovery | DRT (2023)

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IN THE DEBTS RECOVERY TRIBUNAL –I AT CHENNAI

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Dated this 9^th Day of January, 2023

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PRESENT: SHRI A.S.JAYACHANDRA

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Presiding Officer

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S.A. No.434 of 2022

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M/s.R.R. Info Park Pvt. Ltd.,

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Rep. By its Director Mr.Ravi Raman,

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R.R.Skyline,

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Plot Nos.18,19 and 20(SP),

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Ambattur Industrial Estate,

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Chennai – 600058.

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Mr.R.Ravi, S/o Mr.V.Raman, 54, Beach Road,

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Kalakshetra Colony, Chennai – 600090.

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. . . Applicant/s

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Versus

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Asset Reconstruction Company (India) Limited, Regd. Office at: ‘The Ruby’, 10^th Floor, No.29, Senapati Bapat Marg,

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Dadar (West), Mumbai – 400028.

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The Authorised Officer,

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Indian Bank, New No.7, Prakasam Road, T.Nagar, Chennai – 600017.

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The Authorised Officer, Indian Overseas Bank, No.84, Karaneeswara Koil Street,

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Saidapet, Chennai – 600015.		. . . Defendants
Counsel for Applicant	:-	Mr.M.Sathiya Kumar
Counsel for D1/Caveator	:-	Mr. Surya Teja
Counsel for D2	:-	Mr.P.M.Surender
Counsel for D3	:-	None

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: - O R D E R - :

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This order disposes an application filed under Section 17 of SARFAESI Act, 2002, (herein after referred to as Act) challenging the sale notice dated 31.10.2022 for the proposed auction notified on 07.12.2022. The value of the debt as notified is for recovery of Rs.423,20,25,818.28p

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The applicants are the borrowers. They have challenged the sale notice dated 31.10.2022 issued by the 1^st Defendant on behalf of Defendants 2 & 3. As there was caveat, caveator was put to notice. The present application is filed after the schedule sale which was to take place on 07.12.2022. However, the caveator was asked to submit with regard to the result of sale and a detailed counter was also sought to be filed. Accordingly the same is filed.

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Notices to other defendants are also served.

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Facts of the case :- The 1^st Applicant is a Company represented by the 2^nd Applicant, who also stood as guarantor for the credit facilities availed by the 1^st Applicant. The Applicants availed credit facilities under a consortium leading arrangement with Oriental Bank of Commerce, Indian Overseas Bank, Indian Bank, Bank of Maharashtra and Corporation Bank (herein after referred to as Banks) for a total sum of Rs.270 Crores towards the development of IT Park at Ambattur Industrial Estate, Chennai in the year 2006 and subsequently renewed the credit facilities in the year 2008. The 1^st Applicant had mortgaged movable and immovable properties to secure the

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credit facilities sanctioned by the above mentioned Banks. Due to global financial crisis in 2008, and its impending impact on the IT sector in India, the 1^st Applicant Company ran into financial distress and was unable to repay the sanctioned loan as per the sanctioned terms. The loan accounts of the Applicants were classified as NPA and Demand Notice under Section 13(2) was issued by Oriental Bank of Commerce, Indian Overseas Bank and Indian Bank.

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The Applicants submits that the consortium of Banks issued Section 13(4) Possession Notice on 14.02.2011 and followed by Sale Notice on 13.07.2011 fixing the auction on 22.08.2011. Hon’ble High Court of Madras vide CP No.47 of 2020 ordered winding up of the Company and Liquidator has taken charge of the affairs of the Company as per the statutory notice. Four of the consortium members have assigned the debt to Asset Reconstruction Companies including two Banks namely the 2^nd and 3^rd Defendant to the 1^st Defendant while Union Bank of India, erstwhile Corporation Bank alone is still pursuing its debt individually. The said assignment itself is being illegal as being time barred. The 1^st Defendant issued a fresh Section 13(2) Demand Notice on 15.03.2022 claiming the accounts were treated as NPA. The Applicants are also in receipt of Section 13(2) notice under SARFAESI Act on 20.05.2022 from JM Financial Asset Reconstruction Company who had taken over the loans of OBC who was one of the consortium lenders. The impugned Sale Notice was issued by the 1^st Defendant on 31.10.2022 for recovery of its dues.

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The Applicants further submits that Section 9 of Limitation Act, the “terminus a quo”, namely the starting point of limitation for the consortium is not later than 24.09.2008 and the “terminus ad quem”, namely the end point of limitation for enforcing the security interest is 24.09.2011 by applying Article 137 of Limitation Act, applicable to any Special Act. The assignor Banks had also filed OA No.121 of 2011 on 03.06.2011, which was ruled in favour of the consortium on 13.12.2012 and DRC No.73 of 2013 was

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issued on 21.05.2013. After issuance of DRC 73 of 2013, there is no role for the Defendants to enforce the security interest under the SARFAESI Act. No dual jurisdiction exists to enforce the same under SARFAESI Act or IBC 2016 also. The 1^st Defendant issued Section 13(4) Possession Notice on 12.07.2022 claiming Rs.700,63,18,637/-. The 1^st Defendant herein has issued a Demand Notice on 02.11.2022 under the IBC against the personal guarantor and M/s.JMF ARC has already filed Section 7 Application under the IBC against the borrower which is also being adjudicated for admission. Therefore it cannot seek the benefit of both being a member in this consortium for SARFAESI action and then individually against the borrower/guarantor.

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The sale notice is challenged on several grounds including the plea of limitation. Certain rulings are also cited in the pleadings as grounds which are superfluous on record to quote herein. The contention of the applicants is that the period of limitation is for three years and that the cause of action to the present proceedings arose on 24.09.2008 and article 137 of the Limitation Act applies to the IBC Proceedings and also to the SARFAESI Act. Certain portions of the judgments rendered by the Hon’ble Supreme Court and the High Courts are pleaded as grounds. The applicants urge that the Demand Notice and the Possession Notice is bad in law in view of Section 13(9) of SARFAESI Act. According to applicants the Defendant Banks 2 & 3 who have assigned the debts in favour of the first Defendant hold only 37% of the total value of the loan as on 31.11.2020. Therefore the Demand Notice dated 15.03.2022 is not only time barred against law under Section 13(9) of SARFAESI Act, since the value of the debt is below 60% and no consent was obtained. The record date of 30.11.2010 only shows the claim at Rs.315.65 Crores representing 37% and the minimum prescribed to invoke SARFEASI Act is 60% of the debt. The other contentions pleaded as grounds do not call for reproduction in this appeal, for prolixity.

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7. Counter Statement of 1^st Defendant :- Upon entering appearance, the first

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defendant had filed a detailed counter and it has submitted that no sale took place as per the impugned sale notification. It is also submitted that Defendants 2 & 3 and other Banks have filed OA No.121 of 2011 before DRT-III, Chennai and the same was allowed. The details of the decree in favour of the defendants are as under:-

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“In the result, both IAs are dismissed without costs and OA is allowed and the final order is passed as under:-

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(a) The applicant bank is entitled for recovery certificate against the defendants 1 and 2 jointly and severally for a sum of Rs.339,79,08,983/- (Rupees Three Hundred Thirty Nine Crores Seventy Nine Lakhs Eight Thousand Nine Hundred Eighty Three only) to the applicant banks as follows:-

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(i)	To the 1^stapplicant bank	- Rs.86,28,43,082/-
(ii)	To the 2^ndapplicant bank	- Rs.63,86,79,901/-
(iii)	To the 3^rdapplicant bank	- Rs.64,07,08,423/-
(iv)	To the 4^thapplicant bank	- Rs.63,57,86,612/-
(v)	To the 5^thapplicant bank	- Rs.61,99,10,965/-

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(b) It is further ordered that in case of default of payment as determined above, the applicant banks are at liberty to sell the OA schedule mentioned mortgaged properties (Schedule A and B), which shall form part of this order and appropriate the sale proceeds towards the amount due the applicant bank is entitled to get the Court fee paid.

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(c) It is further ordered that if the sale proceeds are not sufficient to satisfy the dues of the applicant banks, 2^nd defendant is personally liable for the balance due.

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(d) The Registry is directed to issue recovery certificate in favour of the applicant bank in terms of the final order.

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(e) Communicate copy of this order to the parties in terms of Section 19(21) of RDDB & FI Act, 1993.“

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It is also submitted that the first applicant had earlier filed SA No.42 of 2019 which matter was suppressed in the present application and the said SA was dismissed on 09.04.2019. The applicants made further efforts to repay, and they did not repay as proposed. Consequently Demand Notice was issued on 15.03.2022.

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In the counter it is also made clear that winding up proceedings were filed against D1 Company to which liquidator was appointed on 11.09.2014, as per the orders

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of Hon’ble High Court of Madras dated 05.01.2016 in OSA No.252 of 2014 and the allegations found in the petitions are all denied and it is submitted that the Demand Notice is in time and that the applicants have the legal choice to invoke proceedings under SARFAESI Act, apart from other fora.

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After hearing the Ld. Counsel the following points arise for determination in this application.

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(a) Whether the sale notice is opposed to the provisions of SARFEASI Act?

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(b) Whether the same is invalid in view of the proceedings under IBC, which is initiated before NCLT?

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It is seen from the records that one of the Asset Reconstruction Companies which got assigned with the debt of other lenders had initiated IBC Proceedings. The Ld. Counsel on both sides submit that the same is pending and there is no moratorium ordered by the competent court / judicial forum. Therefore there is no hurdle by way of any judicial or quasi judicial orders to proceed under SARFAESI Act.

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The Ld. Counsel for the applicants attacks the impugned order on three grounds and prays for holding that the impugned sale notice is against the provisions of SARFAESI Act and the law covering the subject, though the sale notice has become infructuous. On the other hand Ld. Counsel for the first Defendant submits that the “record date” as mentioned under Section 13(9) of SARFAESI Act cannot be the dates of earlier demand notice, but the record date shall be as per the dates mentioned in the notice for sale. The record date is the reckoned date from the Demand Notice made under Section 13(2) of the Act by the first Defendant i.e. 15.03.2022. It is also submitted that Section 13(9) is complied since the D1 and JMARC are holding above 60% of the value of the debt to be recovered from their side. It is submitted that the joint lenders

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meeting was held on 20.09.2022 for fixing the reserve price of the secured assets. From the meeting and fixing the reserve price, there is a tacit consent given by other financial creditors also and therefore it is submitted that the sale notice cannot be held as opposed to the provisions of Section 13(9) of the Act.

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The contention of the Ld. counsel for the applicant that one of the lenders (namely Asset Reconstruction Company which acquired the debts) since had initiated the proceedings under IBC, the present proceedings are bad in law under SARFAESI Act. This contention does not sound to logic in view of the settled position of law. The financial creditors have the choice and the liberty to recover the dues under all the alternative forums as provided under law. In the ruling of M/s.Transcore Vs. Union of India, it is held that

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“On the other hand, in the present case, we have two separate enactments, namely, the DRT Act, 1993 and the NPA Act, 2002. Further, the DRT Act does not deal with assignment of an asset by the bank/FI to the asset reconstruction company/ securitisation company. This can be done only under the NPA Act. Under the NPA Act, the asset Reconstruction Company/ securitisation company can manage and reconstruct the asset. The said company can even step into the shoes of the lender bank/FI, therefore, the remedy under NPA Act is an additional remedy, as stated in Section 37 of NPA Act. The NPA Act is in addition to the DRT Act, therefore, the scheme of the SFC Act is different from the integrated scheme of the DRT Act and the NPA Act. In the circumstances, the judgment of this Court in A.P. State Financial Corporation (supra) has no application.”

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Following the above, it can be said that the mere filing of the proceedings under IBC cannot deter the Defendant No.1 to invoke SARFEASI Act. Furthermore it is to be noted that the Defendant No.1 has not invoked IBC Proceedings. Therefore the contention of the Ld. Counsel for the applicant that the pendency of the proceedings under IBC initiated by the JM Financial Asset Reconstruction Company stops other lenders to invoke the provisions of SARFAESI Act cannot be accepted. As regards the other contentions that the consent of all the other lenders who have a legal interest of

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60% of the value of the debt has not obtained to initiate the process under Section 13(4) of SARFAESI Act renders the sale notice is illegal also cannot be accepted, for the reasons that the Defendants have sustainable interest in recovering the debt which is more than 60% of the total value and this fact is not denied by the applicants during the course of arguments.

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The other point canvassed by the Ld. Counsel for the applicants is that the “record date” as discussed under Section 13(9) of SARFAESI Act is 15.12.2010, the same cannot be taken as the record date. In the impugned sale the date of demand notice issued by the first defendant is 15.03.2022, the date in the demand notice canvassed by the applicants is issued by the Oriental Bank of Commerce which had later assigned the debt in favour of JMF ARC. Furthermore it is to be noted that Defendant No.1 issued the Demand Notice on 15.03.2022, the applicants have not cared to reply or protest the Demand Notice on such legal grounds as are urged now. The Ld. Counsel for the applicant admits that the applicants have not protested the Demand Notice issued by the D1, since the applicant have not responded under Section 13(3-A), now the applicants cannot seek to set the clock back establishing under the changed circumstances. In the event of non- payment of secured debts by the borrower, notice under Section 13(2) is given as a notice of demand. The scheme of Sub-sections (2), (3) and (3-A) of Section 13 of NPA Act shows that the notice under Section 13(2) is not merely a show cause notice, it is a notice of demand and it constitutes an action taken by the bank/ FI for the purposes of the NPA Act. That notice of demand is based on the footing that the debtor is under a liability and that his account in respect of such liability has become substandard, doubtful or loss. Therefore the lender banks have assigned the debts to Asset Reconstruction Companies are recognized as per Section 2(b) and 2(1)(m) of the SARFAESI Act.

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As regards the plea of limitation, it is urged that “record date” is 15.12.2010 and the period of limitation expired by three years and the recovery is barred by limitation is to be viewed from the subsequent developments namely:-

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a) OA is decreed on 03.06.2011.

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b) The decree is executable as per DRC 73 of 2013 dated 21.05.2013.

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c) The proceedings arise of recurring causes of action.

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d) Admittedly in the pleadings in Para 5.14 the applicants themselves in unambiguous terms admit that a settlement agreement dated 16.03.2020, which was not adhered to.

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This admission by the applicants itself is enough to say a recurring cause of action, which is not barred under limitation. This uproots the contentions raised concurring limitation and the “record date” argued. Thus there is no merit in the argument.

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For the above said reasons, this Tribunal does not find any merits to accept the contention of the Ld. Counsel for the applicants that the impugned order is invalid and this Tribunal does not see any illegality or impropriety in the impugned sale notice which has become infructuous. Accordingly this Tribunal passes the following:

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O R D E R

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The SA No.434 of 2022 stands dismissed

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Parties to bear their own costs.

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Sd/(A.S.JAYACHANDRA) PRESIDING OFFICER DRT-I, CHENNAI

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(Dictated to PS, transcribed by him, corrected, signed and pronounced by me on this 9^th Day of January. 2023)

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