Dismissed

Mr Wilfred D Souza v. Vishwakarma Sahakara Bank Ltd.

DRT9 Nov 2023SA/92/2022

Case brief

AI extract

What is this about?

The Debt Recovery Tribunal held that a secured creditor cannot recover costs, charges, or expenses from a borrower for measurement actions, specifically a possession notice, that were voluntarily withdrawn by the creditor. The proceedings were declared infructuous, and the creditor was directed to reverse such costs.

What did the court decide?

Securitisation Application dismissed as infructuous; Defendant directed to reverse all costs, charges, and expenses incurred in the impugned action and shall not claim them as recoverable debt.

Mr Wilfred D Souza versus Vishwakarma Sahakara Bank Ltd. — Banking and Recovery | DRT (2023)

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IN THE DEBTS RECOVERY TRIBI.INAL -^1, KARNATAKA AT BENGALURU

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PRESENT: SRI IMTI AZ ALT PRESIDING OFFICER

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Dated the 09th day of November,2}23

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SECURITISATION APPLICATION NO. 92 OF 2022

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Befween

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Wilfred D Souza, S/o Salvadore D Souza, 21-6-713,

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Diamond Ice and Cold Storage, Bolara, Leewell, Mangalore,

Karnataka- 575001.

...Applicant

And

The authorised officer, Vishwakarma Sahakara Bank Limited, Head Office, Carstreet, Mangalore, Karnataka- 575001. Defendant

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, This Securitisation Application having been heard on^25.01 .2023 in the^presence

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of Advocate Shri Puttaraju for the applicant, and Advocate Shri K Shrikrishna for the defendant, and stood over to this day for consideration, the Tribunal delivered^the following:-

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FINAL ORDER

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The applicant filed the above Securitisation Application^(SA) on 02.03.2022 under 5.17(1) of the Securitisation and Reconstruction of Financial^Assets and Enforcement of Security Interest Act, 2002 as amended from time to time - hereinafter referred to as'the Act'- praying to set aside the possession notice dated 10.02.2022.The applicant is none other than the borrower of a financial assistance in the form of business loan of {15 lakhs availed from the Vishwakarma Sahakara Bank Limited. For convenience, the Vishwakarma Sahakara Bank Limited is^referred to as 'the defendant bank' hereinafter.

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sA92/2022

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The defendant was duly served with summons, who entered appearance through counsel in the proceedings on 11.04.2022. However, no written statement was filed despite obtaining adjournments on three occasions. While being so, the defendant on 15.01.2023 filed a memo stating that the impugned possession notice dated 10.02.2022 has been withdrawn and the bank is intending to proceed with another proceedings. The memo reads as below:-

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"The respondent submits that appellant has filed above SA challenging the possession notice dated 10.02.2022 issued by respondent pursuant to demand notice dated 29.11.202 I claiming o sum of {15,41,595/-from the oppellant towards his liability in the loan^qccount of {15 lakhs .The respondent does not intend to proceed with the proceeding under challenge in the above SA. However, the respondent is proceedingwith another proceeding under SARFAESI Act initiated against the appellant. Therefore, above SA may be disposed of by recording this memo.^"

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Ld counsel for the applicant raised his objection for withdrawal of the proceedings, unless the defendant bank reverses the amounts that were debited from the loan account of the applicant towards expenses incurred for the measures initiated by the bank, which was not consented to by Ld counsel for the defendant.

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Sub-section (7) of S.l3 of the Act deals with recovery of charges and

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expenses incurred by a secured creditor in any action taken under 5.13(4) of the Act and it reads as below:-

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"l(here any action hqs been taken against a borrower under the provisions ofsub-section @), oll costs, charges and expenses which, in the opinion of the secured creditor, hove been properly incurred by him or any expenses incidental therelo, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract lo the conlrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor ond the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests.^"

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The Act does not define the words 'costs', 'charges' and 'expenses'. As per the commentary of Dr R.G Chaturvedi on the Act (fifth edition) by Bharat Law Publications, 'costs' means the amounts originally spent in performing a particular act or operation, and signify the total sum necessary to be paid to cover the expenses incurred either in initiating proceedings or remunerating services. 'Charges' would include both expenses and costs and would signify all pecuniary burdens, encumbrances, taxes or liens including costs, expenses and liabilities. The word 'expenses' is of a wider connotation

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sA'9212022

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and includes costs and actual disbursement. The phrase 'all costs, charges and expenses' stipulated in sub-section (7) of S.l3 of the Act must be such-

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(i) as have been properly incurred by the secured creditor; and

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(ii) are incidental to the action taken by the secured creditor under sub-section (7) of S.13 of the Act, that is incidental to the management or possession of the secured assets as taken over by the secured creditor.

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When the costs and expenses include in the recovery of the legally recoverable debt through civil court or Tribunal it stands at a different footing. But when a secured creditor is armed with power to recover such costs and expenses through its authorised officer without the intervention of the Court or Tribunal, he should be very careful in doing so. However, as per the aforesaid provision under the Act, he is entitled to recover such costs and expenses as are properly incurred in terms of sub-section (7) of S.13 of the Act only. The said provision contemplates for reimbursement of costs and expenses incurred by the secured creditor in enforcing its security interest over the secured asset for recovery of its secured debt from the secured debtors. Therefore, any amount which are not properly incurred are outside the scope of 5.13(7) of the Act. To put it differently, any amount incurred for illegal operation of law cannot be passed on to the borrower and the same is beyond legislative sanction and not admissible in the eye of law.

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l. The Act and the Rules made thereunder are silent about the costs and expenses incurred in a failed measure taken by the secured creditor or its authorised officer under 5.13(4) of the Act. Naturally, such expenses cannot construed to be prdperly incurred in a measure taken under S.13(4) of the Act against the borrower or any proceeding incidental thereto. In the instant case, the l't defendant has taken a measure under 5.13(4) of the Act for taking possession of the secured asset, which has been by way of the SA. However, all on a sudden, the defendant arbitrarily and :::,**"0

sA92t2022

voluntarily withdrew the action and, therefore, the cause of action has been vanished and the SA has become infructuous, which is an undisputed fact. Now, the question arises for consideration is as to whether the defendant bank is entitled to recover the costs and expenses incurred in such defaulted proceedings from the borrower and out of the sale proceeds ofthe secured asset.

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Undisputedly, the borrower failed to respond to the demand notice dated 29.1I.2021 issued by the defendant within the stipulated time therein. If the bonower fails to discharge his liability in full within the period as specified in sub-section (2) of S.13 of the Act, the secured creditor is entitled to take recourse to one or more of the measures including sale of the secured asset as specified in sub-section (4) of S.l3 of the Act to recover his secured debt. Accordingly, the defendant issued possession notice dated 10.02.2022 taking possession of the schedule immovable property in exercise of the powers conferred upon him under S.13(4) of the Act r/w Rr.6&8 of the Security Interest (Enforcement) Rules, 2002, which has been challenged in the impugned proceedings. 25.01.2023 was the date fixed for filing written statement of the defendant. But when the case was taken up on 25.01.2023, Ld counsel for the defendant submitted that the possession notice dated 10.02.2022 has been withdrawn. The secured creditor is entitled to do that but it hardly matters for the borrower in terms of expenses to be incuned by him for such withdrawn action. If there is no clarity in the provision of law for such defaulted acts, the benefit should be granted to the beneficiary, i.e the borrower. Moreover, every measure under S.l3(4) or S.l4 of the Act can be a recurring measure depending upon the voluntary decision taken by the secured creditor till the sale of the secured asset is taken place eventually. Therefore, there cannot be any justifiable reason for debiting the costs and expenses if the recourse and measure taken by the secured creditor under S.13(4) of the Act are not in accordance with the provisions of the Act and the Rules made thereunder or such measures have been voluntarily withdrawn by the

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sA92l?022

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seiured creditor for any reason. Things would have been different if such measures were withdrawn by the secured creditor at the request of the borrower or at his default. For the secured creditor, the proceedings under the Act can be resumed by invoking a fresh cause of action but the borrower has be to be penalised for every such failed attempt for default of the secured creditor or its authorised officer, which is not fair. In the above facts and circumstances of the case, this Tribunal is of the opinion that the secured creditor in this case is not entitled to debit the costs, charges and expenses incurred by it in the impugned proceedings from the borrower or out of the sale proceeds of the secured asset.

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g. In the result, IA No.443 12022 is closed and SA^g2l2o22 is dismissed as infructuous with a direction to the defendant bank that it shall reverse all costs, charges and expenses incurred by it or any expenses incidental thereto in connection with the impugned action taken against the applicant under sub-section (a) of S.13 of the Act and shall not claim them as legally recoverable debt by operation of law. The parties shall suffer their respective costs.

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Communicate copy of this final order to both parties as provided in subsection (7) of S. 17 of the Act r/w R.16 of the Debs Recovery Tribunal (Procedure) Rules,

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1993 (as amended from time to time).

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[Dictated^{to my PA direclly on the computer, correctedandpronounced by me in the openTribunalon this the 0/h} day ofNovember, 2023J t V ;^{rMrnz ALr} l PRESIDING OFFICER

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IN THE DEBTS RECOVERY TRIBLINAL - I, KARNAI'AKA AT BANGALORE

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PRESENT: SRI IMTI AZ ALI PRESIDING OFFICER

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Dated the 09th day of November,2023

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SECURITISATION APPLICATION NO. 92 OF 2022

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Between

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Wilfied D Souza, S/o Salvadore D Souza. 21-6-713, Diamond Ice and Cold Storage, Bolara, Leewell, Mangalore, Karnataka - 575001.

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...Applicant

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And

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The authorised officer, Vishwakarma Sahakara Bank Limited, Head Office, Carstreet, Mangalore, Karnataka - 575001.

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Defendant

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FINAL OITDEIT

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\ \^u? q

Mr Wilfred D Souza v. Vishwakarma Sahakara Bank Ltd.

Case brief

What is this about?

What did the court decide?

Mr Wilfred D Souza v. Vishwakarma Sahakara Bank Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

Statutes considered

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