Dismissed

Sumermal H Shah HUF and Anr. v. Ms Edelweiss Asset Reconstruction Company Ltd.

DRT29 Jan 2024SA/30/2024

Case brief

AI extract

What is this about?

The court dismissed an interim application seeking to quash a Section 14 order under the SARFAESI Act. The applicant argued that proceedings under the RDB Act rendered the SARFAESI demand notice redundant post-settlement. The court held that parallel proceedings are permissible and the original notice remained valid as default occurred post-restructuring.

What did the court decide?

The interim application (IA No.189/2024) was dismissed with cost. The stay on possession notice and Section 14 order was denied.

29/01/2024	Ex. No.	Before Presiding Officer Dr. Rekha G. Dhakar, DRT-1, Mumbai. *Roznama in SA No.30/2024* *Sumermal H Shah & Anr. Vs. M/s Edelweiss* *Asset Reconstruction Company Ltd.*	Next date
		Advocate Gaurang Kinkhabwala a/w Dhwani Patel & Twinkle i/b Tushar Goradia appeared for the Applicants. Advocate Dinesh Purandare a/w Adv. Suchitra Valjee, Adv. Devyash i/b Manilal Kher Ambalal appeared for the Respondent. IA No.189/2024 1. Today the matter is listed for order on this IA. 2. By way of the present IA, the Applicants has prayed to restrain the Respondent for taking any steps in respect of the properties (mentioned in para 7(a) of the IA); stay, effect, operation, implementation and execution of the possession notice dated 09.01.2024; and stay the order dated 02.12.2023 passed by Ld. ACMM, Esplanade, Mumbai under Section 14 of the SARFAESI Act, 2002. 3. Ld. Counsel for the Applicants has contends that the Respondent had initiated action under

29/01/2024

Ex.
No.

Before Presiding Officer Dr. Rekha G.
Dhakar, DRT-1, Mumbai.
Roznama in SA No.30/2024
Sumermal H Shah & Anr. Vs. M/s Edelweiss
Asset Reconstruction Company Ltd.

Next date

Advocate Gaurang Kinkhabwala a/w Dhwani Patel &
Twinkle
i/b
Tushar
Goradia
appeared
for
the
Applicants.
Advocate
Dinesh
Purandare
a/w
Adv.
Suchitra
Valjee, Adv. Devyash i/b Manilal Kher Ambalal
appeared for the Respondent.
IA No.189/2024
1.
Today the matter is listed for order on this IA.
2.
By way of the present IA, the Applicants has
prayed to restrain the Respondent for taking
any
steps
in
respect
of
the
properties
(mentioned in para 7(a) of the IA); stay, effect,
operation, implementation and execution of the
possession notice dated 09.01.2024; and stay
the order dated 02.12.2023 passed by Ld.
ACMM, Esplanade, Mumbai under Section 14 of
the SARFAESI Act, 2002.
3.
Ld. Counsel for the Applicants has contends
that the Respondent had initiated action under

SARFAESI Act, 2002 by issuing demand notice dated 05.11.2019 however, thereafter, filed the proceeding under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 (“the RDB Act, 1993), thus, the Respondent had resorted to take action under the RDB Act and not under the SARFAESI Act.
4. He contends that the Applicants repaid huge amounts towards the outstanding dues and by
letter dated 05.03.2019, the Applicants requested the Respondent to extend the tenure of the loan however, the Respondent declared the account as NPA on 25.06.2019 and
thereafter, issued the demand notice dated
05.11.2019 under Section 13(2) of the
SARFAESI Act, 2002. He submitted that after
the issuance of the demand notice, the
Respondent proceeded in the OA No.213/2020,
and thereafter, the Borrower vide its letter
dated 31.08.2020 submitted proposal to restructuring of debt which was accepted by the Respondent vide its letter dated 28.09.2020 and thereafter executed consent terms dated 03.12.2020 in terms of the restructuring. He submits that the OA was disposed off vide order dated 08.03.2021 in terms of the consent terms

SARFAESI Act, 2002 by issuing demand notice
dated 05.11.2019 however, thereafter, filed the
proceeding under Section 19 of the Recovery of
Debts and Bankruptcy Act, 1993 (“the RDB Act,
1993), thus, the Respondent had resorted to
take action under the RDB Act and not under
the SARFAESI Act.

4.
He contends that the Applicants repaid huge
amounts towards the outstanding dues and by

letter
dated
05.03.2019,
the
Applicants
requested the Respondent to extend the tenure
of the loan however, the Respondent declared
the
account
as
NPA
on
25.06.2019
and

thereafter, issued the demand notice dated

05.11.2019
under
Section
13(2)
of
the

SARFAESI Act, 2002. He submitted that after

the
issuance
of
the
demand
notice,
the

Respondent proceeded in the OA No.213/2020,

and thereafter, the Borrower vide its letter

dated
31.08.2020
submitted
proposal
to
restructuring of debt which was accepted by the
Respondent vide its letter dated 28.09.2020
and thereafter executed consent terms dated
03.12.2020 in terms of the restructuring.
He
submits that the OA was disposed off vide order
dated 08.03.2021 in terms of the consent terms

	thus, he submitted that the since the account of the Borrower/Applicants was settled pursuant to the order dated 08.03.2021, the Section 13(2) notice dated 05.11.2019 became redundant. He submits that the respondent was required to declare the account of the Borrower as NPA and issue a fresh demand notice under Section 13(2) of the SARFAESI Act, 2002. In support of his contention, Ld. Counsel for the Applicants has
	referred the judgment of Hon’ble Supreme
	Court in Sasan Power Limited Vs. North
	American Coal Corporation (India) Pvt. Ltd. (2016) 10 SCC 813.
5.	He also states that the respondent measurably failed to disclose the said fact of the OA proceeding in the application filed before the Ld. ACMM and by suppressing the said fact, obtained the order under Section 14 of the SARFAESI Act, 2002 therefore, the said order obtained by suppressing the fact is a nullity and ought to be set aside and quashed.
6.	Ld. Counsel for the Respondent strongly objected to the present interim application and
	contends that this is another tactic of the Applicants to derail the recovery proceeding. He submits that it is the well settled position that

thus, he submitted that the since the account of
the Borrower/Applicants was settled pursuant
to the order dated 08.03.2021, the Section 13(2)
notice dated 05.11.2019 became redundant. He
submits that the respondent was required to
declare the account of the Borrower as NPA and
issue a fresh demand notice under Section 13(2)
of the SARFAESI Act, 2002. In support of his
contention, Ld. Counsel for the Applicants has

referred the judgment of Hon’ble Supreme

Court
in
Sasan
Power
Limited
Vs.
North

American Coal Corporation (India) Pvt. Ltd.
(2016) 10 SCC 813.

He also states that the respondent measurably
failed to disclose the said fact of the OA
proceeding in the application filed before the
Ld. ACMM and by suppressing the said fact,
obtained the order under Section 14 of the
SARFAESI Act, 2002 therefore, the said order
obtained by suppressing the fact is a nullity and
ought to be set aside and quashed.

Ld.
Counsel
for
the
Respondent
strongly
objected to the present interim application and

contends that this is another tactic of the
Applicants to derail the recovery proceeding. He
submits that it is the well settled position that

the bank/financial institution may proceed simultaneously for the SARFAESI measures and
proceeding under the RDB Act, 1993 and the
Respondent has proceeded accordingly
therefore, there is no need for the issuance of
fresh demand notice after the consent terms in
the OA proceeding. He also contends that the
necessary information as required under
Section 14 of the SARFAESI Act, 2002 has
already been provided to the Ld. ACMM which
were duly considered by Ld. ACMM and
thereafter passed the order dated 02.12.2023 therefore, there is no illegality in the said order.
7. He also submits that the Applicants has
committed the default thus, the account was
declared as NPA on 25.06.2019 and demand
notice dated 05.11.2019 was issued. He
submitted that during the pendency, the
restructuring proposal was approved and in
pursuant to which the consent terms was
executed and thereafter, the OA was disposed
off as per consent terms however, the
Applicants again committed default therefore,
he submits that the date of the NPA would be
considered prior to the restructuring thus, he
submits that the action of the Respondent is in

the
bank/financial
institution
may
proceed
simultaneously for the SARFAESI measures and

proceeding under the RDB Act, 1993 and the

Respondent
has
proceeded
accordingly

therefore, there is no need for the issuance of

fresh demand notice after the consent terms in

the OA proceeding. He also contends that the

necessary
information
as
required
under

Section 14 of the SARFAESI Act, 2002 has

already been provided to the Ld. ACMM which

were
duly
considered
by
Ld.
ACMM
and

thereafter passed the order dated 02.12.2023
therefore, there is no illegality in the said order.

7.
He
also
submits
that
the
Applicants
has

committed the default thus, the account was

declared as NPA on 25.06.2019 and demand

notice
dated
05.11.2019
was
issued.
He

submitted
that
during
the
pendency,
the

restructuring proposal was approved and in

pursuant
to which the consent terms was

executed and thereafter, the OA was disposed

off
as
per
consent
terms
however,
the

Applicants again committed default therefore,

he submits that the date of the NPA would be

considered prior to the restructuring thus, he

submits that the action of the Respondent is in

	accordance with the law and hence, the present IA may be dismissed with cost.
8.	Considered the rival submissions of the parties and pursued the record.
9.	In so far as objection pertaining to the action of
	the Respondent for issuing demand notice
	under SARFAESI Act, 2002 and proceeding
	with the OA under the RDB Act, 1993 is
	concerned, the Hon’ble Apex Court in the
	matter of M/s Transcore Vs Union of India (2008) 1 SCC 125, has categorically held that the Banks and Financial Institutions may proceed under the SARFAESI Act, 2002 as well as RDB Act, 1993 therefore, objection of the Applicants in view of dictum of Hon’ble Supreme Court is not sustainable hence, declined.
10.	The Applicants also raised an objection that since the OA was disposed of in terms of the consent terms, the Respondent was required to
	once again declare the account as NPA and
	issue fresh demand notice.
11.	Admittedly, the account was declared as NPA on 25.06.2019 and thereafter, demand notice dated 05.11.2019 was issued under Section 13(2) of the
	SARFAESI Act, 2002, and OA being OA

accordance with the law and hence, the present
IA may be dismissed with cost.

Considered the rival submissions of the parties
and pursued the record.

In so far as objection pertaining to the action of

the Respondent for issuing demand notice

under SARFAESI Act, 2002 and proceeding

with the OA under the RDB Act, 1993 is

concerned,
the Hon’ble Apex Court in the

matter of M/s Transcore Vs Union of India
(2008) 1 SCC 125, has categorically held that the
Banks and Financial Institutions may proceed
under the SARFAESI Act, 2002 as well as RDB
Act, 1993 therefore, objection of the Applicants
in view of dictum of Hon’ble Supreme Court is
not sustainable hence, declined.

10.

The Applicants also raised an objection that
since the OA was disposed of in terms of the
consent terms, the Respondent was required to

once again declare the account as NPA and

issue fresh demand notice.

11.

Admittedly, the account was declared as NPA on
25.06.2019 and thereafter, demand notice dated
05.11.2019 was issued under Section 13(2) of the

SARFAESI
Act,
2002,
and
OA
being
OA

	No.213/2020 was filed by the Respondent herein. During the pendency of the said OA, the
	Applicants/Borrowers vide letter dated 31.08.2020 submitted proposal to restructuring of debt which was accepted by the Respondent vide its letter dated 28.09.2020. Thereafter, the consent terms dated 03.12.2020 was executed between the parties and accordingly the OA was disposed of vide order dated 08.03.2021 in
	terms of the consent terms. However, subsequently the Applicants committed default of the consent terms.
12.	According to Ld. Counsel for the Applicants once the OA was disposed off on the basis of the
	consent terms thus, the notice under Section 13(2) dated 05.11.2019 became redundant and
	the Respondent was required to declare the account of the Borrower as NPA afresh and issue a fresh demand notice under Section 13(2) of the SARFAESI Act, 2002.
13.	It is pertinent to mention here that the
	Applicants herein entered into the consent
	terms with the Respondent Bank but
	subsequently did not adhere the consent terms and now claiming that due to the said consent
	term the Respondent is required to issue fresh

No.213/2020
was
filed by the Respondent
herein. During the pendency of the said OA, the

Applicants/Borrowers
vide
letter
dated
31.08.2020 submitted proposal to restructuring
of debt which was accepted by the Respondent
vide its letter dated 28.09.2020. Thereafter, the
consent terms dated 03.12.2020 was executed
between the parties and accordingly the OA was
disposed of vide order dated 08.03.2021 in

terms
of
the
consent
terms.
However,
subsequently the Applicants committed default
of the consent terms.

12.

According to Ld. Counsel for the Applicants
once the OA was disposed off on the basis of the

consent terms thus, the notice under Section
13(2) dated 05.11.2019 became redundant and

the Respondent was required to declare the
account of the Borrower as NPA afresh and
issue a fresh demand notice under Section 13(2)
of the SARFAESI Act, 2002.

13.

It
is
pertinent
to
mention
here
that
the

Applicants herein entered into the consent

terms
with
the
Respondent
Bank
but

subsequently did not adhere the consent terms
and now claiming that due to the said consent

term the Respondent is required to issue fresh

	demand notice under Section 13(2) of the SARFAESI Act, 2002. The said submission of Ld. Counsel for the Applicants is not acceptable
	as the said consent terms was not being complied with by the Applicants themselves and
	further the said consent terms cannot be
	presumed as a new contract between the
	parties. Even otherwise, the RBI in the
	Guidelines dated 04.07.2017 has already provided that when the account is restructured then it could become a sub standard account. The relevant guidelines are extracted herein below:
	“2.2.7.2 The accounts classified as 'standard assets' should be immediately re-classified as 'sub-standard assets' upon restructuring. 2.2.7.3 The non performing assets, upon restructuring, would slip into further lower asset classification category as per extant asset classification norms with reference to the pre-restructuring repayment schedule.” (emphasis provided)
14.	Therefore, as per guidelines 2.2.7.3, the NPA upon restructuring would slip into further lower asset classification thus, the objection of the Applicants that the fresh demand notice under

demand notice under Section 13(2) of the
SARFAESI Act, 2002.
The said submission of
Ld. Counsel for the Applicants is not acceptable

as
the
said
consent terms was not being
complied with by the Applicants themselves and

further
the
said
consent
terms
cannot be

presumed
as
a
new
contract
between the

parties.
Even
otherwise,
the
RBI
in the

Guidelines
dated
04.07.2017
has
already
provided that when the account is restructured
then it could become a sub standard account.
The relevant guidelines are extracted herein
below:

“2.2.7.2
The
accounts
classified
as
'standard assets' should be immediately
re-classified
as
'sub-standard
assets'
upon restructuring.
2.2.7.3 The non performing assets, upon
restructuring, would slip into further
lower asset classification category as
per extant asset classification norms
with reference to the pre-restructuring
repayment schedule.”
(emphasis provided)

14.

Therefore, as per guidelines 2.2.7.3, the NPA
upon restructuring would slip into further lower
asset classification thus, the objection of the
Applicants that the fresh demand notice under

15.	Section 13(2) of the SARFAESI Act, 2002 was required to be issued, has no substance. As far as objection pertaining to non-disclosure of OA proceeding in the application under
	Section 14 of the SARFAESI Act, 2002 is concerned, on perusal of record of order dated 02.12.2023 of Ld. ACMM, it reveals that the relevant information has already been provided by the Respondent in the Application under Section 14 of the SARFAESI Act, 2002. Therefore, the objection of the Applicants has no merit hence, rejected.
16.	In view of the above, prima facie, I find no merit in the present IA and hence, the same is hereby dismissed. PO DRT-I

15.

Section 13(2) of the SARFAESI Act, 2002 was
required to be issued, has no substance.
As far as objection pertaining to non-disclosure
of OA proceeding in the application under

Section 14 of the SARFAESI Act, 2002 is
concerned, on perusal of record of order dated
02.12.2023 of Ld. ACMM, it reveals that the
relevant information has already been provided
by the Respondent in the Application under
Section
14
of
the
SARFAESI
Act,
2002.
Therefore, the objection of the Applicants has
no merit hence, rejected.

16.

In view of the above, prima facie, I find no
merit in the present IA and hence, the same is
hereby dismissed.
PO
DRT-I

Sumermal H Shah HUF and Anr. v. Ms Edelweiss Asset Reconstruction Company Ltd.

Case brief

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What did the court decide?

Sumermal H Shah HUF and Anr. v. Ms Edelweiss Asset Reconstruction Company Ltd.

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