Dismissed

Dr. Abdul Rasheed @ a.R.Babu v. Ifci Limited

Kerala HC3 Dec 2020WP(C)/8578/2020

Case brief

AI extract

What is this about?

The court dismissed the writ petition challenging the secured creditor's initiation of SARFAESI proceedings against a personal guarantor. Relying on Supreme Court precedents, the holding stated that SARFAESI proceedings against a guarantor can continue despite corporate insolvency proceedings and that the alternative remedy under Section 17 bars writ jurisdiction.

What did the court decide?

The writ petition is dismissed; the secured creditor is directed to proceed with the SARFAESI action.

Dr. Abdul Rasheed @ a.R.Babu Vs Ifci Limited — Cheque Dishonour | Kerala HC (2020)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR. JUSTICE A.M.BADAR

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THURSDAY, THE 03RD DAY OF DECEMBER 2020 / 12TH AGRAHAYANA, 1942

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WP(C).No.8578 OF 2020(V)

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PETITIONER:

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DR. ABDUL RASHEED @ A.R.BABU 'HEERA' GOLF LINKS ROAD, TKV NAGAR, KOWDIYAR, THIRUVANANTHAPURAM-695 003.

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BY ADV. SMT.K.V.RASHMI

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RESPONDENTS:

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1 IFCI LIMITED, CONFIDENTIAL CHAMBERS, 2ND FLOOR, MG ROAD, NUNGAMBAKKOM, CHENNAI , REPRESENTED BY ITS AUTHORIZED OFFICER, HAVING ITS REGISTERED OFFICE AT TOWER 61, NEHRU PLACE, NEW DELHI-110 019.

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2 THE INTERIM RESOLUTION PROFESSIONAL, MR.RAJU, PALANIKKUNNATHIL KESAVAN, GCNRA-9(33/11383 A), KADAMASSERY LANE, CHALIKKAVATTOOM, VENNALA P.O., KOCHI-682 028, KERALA HAVING REG NO.1881/IPA-001/IP-P00801/2017-18/11356.

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R1 BY ADV. SRI.K.P.SUDHEER R2 BY ADVS.SRI.P.V.VINOD SMT.D.REETHA

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THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 03.12.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

W.P.(C) No.8578/2020

JUDGMENT

Dated this the 3^rd day of December 2020

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By this writ petition, the petitioner who happens to be the Managing Director of 'Heera Construction Company'-a corporate debtor, is challenging Exts.P3, P4 and P4(a) and is seeking further direction against the 1^st respondent to keep in abeyance all further proceedings pursuant to Exts.P3, P4 and P4(a) till the disposal of CP(IB) 4447/2018. Ext.P3 is a notice of sale under Rule 8(6) of Security Interest (Enforcement) Rules, 2002. Ext.P4 is a further notice under the said Rules for sale of secured assets. Ext.P4(a) is e-auction sale notice issued in terms of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

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Heard the learned counsel for the petitioner at sufficient length of time. She argued that the 1^st respondent-secured creditor has filed a Corporate Insolvency Resolution proceedings before the National Company Law Tribunal (NCLT), Mumbai. In that matter, on 27.03.2019, the learned NCLT has passed an order of moratorium (Ext.P1) against properties of corporate

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W.P.(C) No.8578/2020 3

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debtor and that order is in operation till conclusion of the Corporate Insolvency Resolution process or till approval of the resolution plan or till liquidation of the corporate debtor. Learned counsel for the petitioner also urged that when proceedings are pending before the NCLT, the 1^st respondent was not justified in initiating parallel proceedings under the SARFAESI Act against the Managing Director of the corporate debtor in respect of properties which are covered in the insolvency proceedings. Learned counsel for the petitioner further urged that Section 60 of the Insolvency and Bankruptcy Code , 2016 bars entertainment of parallel insolvency proceedings in respect of same assets during pendency of proceedings before the NCLT.

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As against this, learned counsel for the 1^st respondent, by relying on the judgment of the Hon'ble Apex Court in the matter of State Bank of India vs. V. Ramakrishnan and another (2018 KHC 6591) urged that the Hon'ble Apex Court has categorically held that SARFAESI proceedings against guarantor can continue under the SARFAESI Act despite pendency of proceedings under the Insolvency and Bankruptcy Code before

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the NCLT. Learned counsel for the 1^st respondent further relied on the judgment of this Court in W.P.(C) No.3658 of 2020 dated 19.11.2020 ( Mohan K. George vs. Authorized Officer, IFCI Limited & others ) and contended that in view of alternate and most efficacious remedy prescribed by Section 17 of the SARFAESI Act, the writ petition as framed and filed cannot be entertained. Learned counsel also urged that the moratorium prescribed under Section 14 of the Insolvency and Bankruptcy Code is not applicable against the guarantor of the corporate debtor.

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I have considered the submissions advanced and perused the materials placed before me. It is not in dispute that the petitioner had offered his personal properties as security for the loan availed by the corporate debtor. From perusal of the sale notice under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 (Ext.P3), it is clear that because of default in repayment of loan of Rs.50 crores availed by the corporate debtor, the secured creditor had recalled the entire loan by issuing demand notice under Section 13(2) of the SARFAESI Act

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on 26.10.2018. It is further seen that possession of assets mortgaged with the secured creditor was also taken by resorting to provisions of the SARFAESI Act. Subsequently, sale notice (Ext.P3) came to be issued.

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In the matter of V.Ramakrishnan (supra), following are the observations of the Hon'ble Apex Court found in paragraph 20 of the judgment.

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“20. It is for this reason that sub-section (2) of Section 60 speaks of an application relating to the “bankruptcy” of a personal guarantor of a corporate debtor and states that any such bankruptcy proceedings shall be filed only before the National Company Law Tribunal. The argument of the learned counsel on behalf of the Respondents that “bankruptcy” would include SARFAESI proceedings must be turned down as “bankruptcy” has reference only to the two Insolvency Acts referred to above. Thus, SARFAESI proceedings against the guarantor can continue under the SARFAESI Act. Similarly, subsection (3) speaks of a bankruptcy proceeding of a personal guarantor of the corporate debtor pending in any Court or Tribunal, which shall stand transferred to the Adjudicating Authority dealing with the insolvency resolution process or liquidation proceedings of such corporate debtor. An “Adjudicating Authority”, defined under Section 5(1) of the Code, means the National Company Law Tribunal constituted under the Companies Act, 2013”.

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It is thus clear that the argument advanced by the learned counsel for the petitioner that because of pendency of proceedings before the NCLT, parallel proceedings under the SARFAESI Act are not maintainable, needs to be rejected. Even otherwise Section 7 of the Insolvency and Bankruptcy Code has application against the corporate debtor. It cannot be said that there is bar for proceedings against the guarantor under the SARFAESI Act because of pendency of corporate insolvency resolution process against the corporate debtor.

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The counter affidavit filed by the 1^st respondent shows that subject properties were leased out by the petitioner in favour of M/s.Hotel Mythri and as against sale notices, the said Hotel Mythri had already approached the Debts Recovery Tribunal, Ernakulam by filing proceedings under the SARFAESI Act. This fact is not pleaded in the instant writ petition despite the fact that the petitioner is seeking equitable relief from this Court.

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The impugned notice at Ext.P3 itself shows that the secured creditor has taken steps for recovery of secured debt by following provisions of SARFAESI Act. The observations of the

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W.P.(C) No.8578/2020

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Hon'ble Apex Court in the matter of Authorized Officer, State Bank of Travancore and another vs. Mathew K.C (2018(1) KLT 784) are thus:

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….... The discretionary jurisdiction under Article 226 is not absolute but has to be exercised judiciously in the given facts of a case and in accordance with law. The normal rule is that a writ petition under Article 226 of the Constitution ought not to be entertained if alternate statutory remedies are available, except in cases falling within the well defined exceptions as observed in Commissioner of Income Tax and Others vs. Chhabil Dass Agarwal, 2014 (1) SCC 603, as follows:

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“15. Thus, while it can be said that this Court has recognised some exceptions to the rule of alternative remedy i.e. where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal case, Titaghur Paper Mills case and other similar judgments that the High Court will not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. Therefore, when a statutory forum is created

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W.P.(C) No.8578/2020

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by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.”

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Even prior to the SARFAESI Act, considering the alternate remedy available under the DRT Act it was held in Punjab National Bank vs. O.C. Krishnan and others, (2001) 6 SCC 569, that :-

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“6. The Act has been enacted with a view to provide a special procedure for recovery of debts due to the banks and the financial institutions. There is a hierarchy of appeal provided in the Act, namely, filing of an appeal under Section 20 and this fast-track procedure cannot be allowed to be derailed either by taking recourse to proceedings under Articles 226 and 227 of the Constitution or by filing a civil suit, which is expressly barred. Even though a provision under an Act cannot expressly oust the jurisdiction of the court under Articles 226 and 227 of the Constitution, nevertheless, when there is an alternative remedy available, judicial prudence demands that the Court refrains from exercising its jurisdiction under the said constitutional provisions. This was a case where the High Court should not have entertained the petition under Article 227 of the Constitution and should have directed the respondent to take recourse to the appeal mechanism provided by the Act.”

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In Satyawati Tandon (supra), the High Court had restrained further proceedings under Section 13(4) of the Act. Upon a detailed consideration of the statutory scheme under the SARFAESI Act, the availability of remedy to the aggrieved under Section 17 before the Tribunal and the appellate remedy

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W.P.(C) No.8578/2020

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under Section 18 before the Appellate Tribunal, the object and purpose of the legislation, it was observed that a writ petition ought not to be entertained in view of the alternate statutory remedy available holding :-

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“43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc. the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are a code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi-judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, the High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute.

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It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for

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W.P.(C) No.8578/2020

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passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection.”

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In Union Bank of India and another vs. Panchanan Subudhi, 2010 (15) SCC 552, further proceedings under Section 13(4) were stayed in the writ jurisdiction subject to deposit of Rs.10,00,000/- leading this Court to observe as follows :

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“7. In our view, the approach adopted by the High Court was clearly erroneous. When the respondent failed to abide by the terms of one-time settlement, there was no justification for the High Court to entertain the writ petition and that too by ignoring the fact that a statutory alternative remedy was available to the respondent under Section 17 of the Act.”

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The same view was reiterated in Kanaiyalal Lalchand Sachdev and others vs. State of Maharashtra and others, 2011 (2) SCC 782 observing:

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“23. In our opinion, therefore, the High Court rightly dismissed the petition on the ground that an efficacious remedy was available to the appellants under Section 17 of the Act. It is well settled that ordinarily relief under Articles 226/227 of the Constitution of India is not available if an efficacious alternative remedy is available to any aggrieved person. (See Sadhana Lodh v. National Insurance Co. Ltd.; Surya Dev Rai v. Ram Chander Rai and SBI v. Allied Chemical Laboratories.)”

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W.P.(C) No.8578/2020

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In Ikbal (supra), it was observed that the action of the Bank under Section 13(4) of the ‘SARFAESI Act’ available to challenge by the aggrieved under Section 17 was an efficacious remedy and the institution directly under Article 226 was not sustainable, relying upon Satyawati Tandon (Supra), observing :

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“27. No doubt an alternative remedy is not an absolute bar to the exercise of extraordinary jurisdiction under Article 226 but by now it is well settled that where a statute provides efficacious and adequate remedy, the High Court will do well in not entertaining a petition under Article 226. On misplaced considerations, statutory procedures cannot be allowed to be circumvented.

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28…….In our view, there was no justification whatsoever for the learned Single Judge to allow the borrower to bypass the efficacious remedy provided to him under Section 17 and invoke the extraordinary jurisdiction in his favour when he had disentitled himself for such relief by his conduct. The Single Judge was clearly in error in invoking his extraordinary jurisdiction under Article 226 in light of the peculiar facts indicated above. The Division Bench also erred in affirming the erroneous order of the Single Judge.”

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A similar view was taken in Punjab National Bank and another vs. Imperial Gift House and others, (2013) 14 SCC 622, observing:-

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W.P.(C) No.8578/2020

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“3. Upon receipt of notice, the respondents filed representation under Section 13(3-A) of the Act, which was rejected. Thereafter, before any further action could be taken under Section 13(4) of the Act by the Bank, the writ petition was filed before the High Court.

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In our view, the High Court was not justified in entertaining the writ petition against the notice issued under Section 13(2) of the Act and quashing the proceedings initiated by the Bank.”

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It is the solemn duty of the Court to apply the correct law without waiting for an objection to be raised by a party, especially when the law stands well settled. Any departure, if permissible, has to be for reasons discussed, of the case falling under a defined exception, duly discussed after noticing the relevant law. In financial matters grant of ex-parte interim orders can have a deleterious effect and it is not sufficient to say that the aggrieved has the remedy to move for vacating the interim order. Loans by financial institutions are granted from public money generated at the tax payers expense. Such loan does not become the property of the person taking the loan, but retains its character of public money given in a fiduciary capacity as entrustment by the public. Timely repayment also ensures liquidity to facilitate loan to another in need, by circulation of the money and cannot be permitted to be blocked by frivolous litigation by those who can afford the luxury of the same. The caution required, as expressed in Satyawati Tandon (supra), has also not been kept in mind before passing the impugned interim order:-

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“46. It must be remembered that stay of an action initiated by the State and/or its agencies/instrumentalities for recovery of taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations towards the citizens. In cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which (sic will) ultimately prove detrimental to the economy of the nation. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters. Of course, if the petitioner is able to show that its case falls within any of the exceptions carved out in Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad, Whirlpool Corpn. v. Registrar of Trade Marks and Harbanslal Sahnia v. Indian Oil Corpn. Ltd. and some other judgments, then the High Court may, after considering all the relevant parameters and public interest, pass an appropriate interim order.”

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We cannot help but disapprove the approach of the High Court for reasons already noticed in Dwarikesh Sugar Industries Ltd. vs. Prem Heavy Engineering Works (P) Ltd. and Another, 1997 (6) SCC 450, observing :-

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“32. When a position, in law, is well settled as a result of judicial pronouncement of this Court, it would amount to judicial impropriety to say the least, for the subordinate courts including

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the High Courts to ignore the settled decisions and then to pass a judicial order which is clearly contrary to the settled legal position. Such judicial adventurism cannot be permitted and we strongly deprecate the tendency of the subordinate courts in not applying the settled principles and in passing whimsical orders which necessarily has the effect of granting wrongful and unwarranted relief to one of the parties. It is time that this tendency stops.”

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The observations as above preclude this Court from entertaining the instant writ petition. Therefore, in the light of the foregoing discussions, this writ petition is dismissed.

Sd/-

A.M.BADAR

JUDGE

smp

W.P.(C) No.8578/2020

APPENDIX

PETITIONER'S EXHIBITS:

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EXHIBIT P1	A TRUE COPY OF THE DATED 27.3.2019 IN	ORDER PASSED BY THE NCLT CP (IB) 4447/MB/2018
EXHIBIT P2	A TRUE COPY OF THE ADMITTED CLAIMS LIS NCLT	RELEVANT PAGES OF THE T SUBMITTED BEFORE THE
EXHIBIT P3	A TRUE COPY OF THE BANK UNDER SECTION	NOTICE ISSUED BY THE 8(6) DATED 23.1.2020
EXHIBIT P4	A TRUE COPY OF THE DATED 6.3.2020	NOTICE OF E-AUCTION
EXHIBIT P4(a)	A TRUE COPY OF THE THE NEW INDIAN EXPR	E-AUCTION PUBLISHED IN ESS DAILY DATED 6.3.2020

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RESPONDENTS' EXHIBITS: NIL.

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True Copy

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P.S to Judge

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smp

Dr. Abdul Rasheed @ a.R.Babu v. Ifci Limited

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Dr. Abdul Rasheed @ a.R.Babu v. Ifci Limited

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