A writ petition filed by an MSME unit against a bank for challenging recovery proceedings, interest charges, and denial of a credit scheme. The court discussed the jurisdiction of the Debts Recovery Tribunal and availability of alternative remedies before dismissing the petition.
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WP(C).3891/22
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IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE V.G.ARUN
THURSDAY, THE 6TH DAY OF OCTOBER 2022 / 14TH ASWINA, 1944
WP(C) NO. 3891 OF 2022
PETITIONER/S:
1 M/S.ALIN CASHEWS DOOR NO.KP-VI-459 B, MANGADU POST, KOLLAM 691015 REPRESENTED BY ITS MANAGING PARTNER MR.SHIHANSHA ABDUL SALAM, PIN - 691015 2 MR.SHIHANSHA ABDUL SALAM AGED 50 YEARS , SON OF MR.ABDUL SALAM, 25-7-622, KATTUPUTHUSSERY PALLICKAL, KILIMANNOOR THIRUVANANTHAPURAM- 695604, PIN - 695604 3 MRS.SHINYMOL AGED 41 YEARS WIFE OF MR.SHIHANSHA 25-7-622, KATTUPUTHUSSERY PALLICKAL, KILIMANNOOR THIRUVANANTHAPURAM- 695604, PIN - 695604 BY ADV B.J.JOHN PRAKASH
RESPONDENT/S:
UCO BANK REPRESENTED BY ITS AUTHORISED OFFICER, KHAISE BUILDING BEACH ROAD, KOLLAM DISTRICT-691001 REPRESENTED BY ITS AUTHORISED OFFICER, KHAISE BUILDING BEACH ROAD, KOLLAM DISTRICT-691001, PIN - 691001 BY ADV H.RAMANAN
THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 1.9.2022, THE COURT ON 06.10.2022 DELIVERED THE FOLLOWING:
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V.G.ARUN, J.
----------------------------------------------W.P(C).No.3891 of 2022
----------------------------------------------Dated this the 6th day of October, 2022
JUDGMENT
The first petitioner is an MSME unit engaged in processing and trading of cashew. Petitioners 2 and 3 are partners of the first petitioner unit. The first petitioner availed cash credit and buyers credit facility from the respondent Bank, which, by the year 2018 stood enhanced to Rs.19,80,00,000/- According to the petitioners, even though regular repayments were being effected, certain setbacks in the business during 2019 followed by the Covid-19 induced lockdown rendered it impossible for the petitioners to continue the prompt repayment. In order to get over the liquidity crisis petitioners applied for extending the benefits under Emergency Credit Line Guarantee Scheme. That request and application for nursing finance and for restructuring of the account were rejected by the respondent Bank. The petitioner alleges that not only did the bank reject its request for additional finance, but it also charged interest, contrary to the sanction letter and terms of agreement. Based on such calculation, Bank issued Exhibit P21 notice under Section 13(4) of the SARFEISI Act demanding
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payment of Rs.2,13,46,324.52 and threatened to sell immovable properties if payment is not effected. Aggrieved, this writ petition is filed seeking the following reliefs;
“I. issue a writ in the nature of mandamus or any other appropriate writ, order or direction to the respondent directing the respondent to extend the benefits provided to MSME units in Exhibits P7, P15, P16 and P17 to the petitioner.
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appropriate writ calling for records leading to issuance of Exhibit P19, Exhibit P20 and Exhibit P21 and quash the same.
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extended, the first petitioner could have overcome the financial crisis and repaid the amount due to the Bank. Finally it is contended that even though the petitioners have approached the Debts Recovery Tribunal, assailing Exhibit P21 notice, the Tribunal has no justification to consider and decide the issues highlighted in this writ petition.
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with jurisdiction to consider the issues canvassed in this writ petition. As would be discernible on reading the preamble of the SARFAESI Act, the objective of the enactment is to regulate securitisation and reconstruction of financial assets and enforcement of security interest and to provide for a central database of security interests created on property rights and for matters connected therewith or incidental thereto. Section 13(2), which empowers the secured creditor to issue notice requiring the borrower to repay the defaulted amount, reads as under;
“13. Enforcement of security interest.—(1)
xx xx xx
(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).”
make representation or raise objection against the proposal for
recovery, is extracted hereunder for easy reference;
“(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such
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representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate 3 [within fifteen days] of receipt of such representation or objection the reasons for nonacceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A. ”
recourse to the measures enumerated therein for recovery of the secured debt, in the event of the borrower failing to discharge the liability within the period specified in Section 13(2). As per
Section 17, any person (including borrower) aggrieved by the measures under Section 13(4) can make an application to the Debts Recovery Tribunal. Thereupon, the Debts Recovery Tribunal will consider whether the measures taken under Section 13(4) by the secured creditor are in accordance with the provisions of the Act and the Rules thereunder.
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Section 13, the reasons so communicated does not confer any right upon the borrower to prefer an application under Section 17 to the Debts Recovery Tribunal. Being so, while considering the challenge against legality of the measures taken by the secured creditor under Section 13(4), the Debts Recovery Tribunal can consider the correctness or otherwise of the reasons stated by the Bank for rejecting the objection raised by the borrowers under Section 13 (3-A). Exhibit R1 produced by the Bank is the notice under Section 13(2) issued by the Bank to which the petitioners submitted Exhibit R2 reply under Section 13(3-A). The reply was considered by the Bank and Exhibit R3 communication issued stating the reasons for rejecting the representation. Only thereafter Exhibit P21 was issued by the Bank under Section 13(4) of the Act. Even though the writ petition is liable to be dismissed for suppression of material facts, in view of the statement that notice under Section 13(2) was not issued before initiating measures under Section 13(4), I refrain from doing so, since the petitioners' challenge against Exhibit P21 is pending before the Debts Recovery Tribunal. As observed earlier, the Debts Recovery Tribunal is competent to consider the circumstances under which Section 13(4) measures were taken, including whether the objection/representation of the borrower under Section 13 (3-A)
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was considered in the proper manner. Yet another pertinent aspect is the availability of alternative remedy before the Banking Ombudsman, regarding the charging of excess interest and denial
of the benefit of Emergency Credit Line Guarantee Scheme.
In the result, the writ petition is dismissed, without prejudice to the petitioners’ right to raise all contentions before the Debts Recovery Tribunal and/or to approach other forums, if
any.
Sd/-
V.G.ARUN, JUDGE
vgs
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APPENDIX OF WP(C) 3891/2022
PETITIONER EXHIBITS
| Exhibit1 | TRUE COPY OF THE UDYOG AADHAR |
|---|---|
| REGISTRATION CERTIFICATE OF THE 1ST PETITIONER UNIT |
|
| Exhibit2 | TRUE COPY OF THE STATEMENT SHOWING THE EXPORTS CARRIED OUT BY THE PETITIONER BETWEEN THE FY 2013-2021 |
| Exhibit3 | THE TRUE COPY OF THE MASTER CIRCULAR PROMULGATED BY RBI WITH NO. RBI/2018- 19/100 DBR.NO.BP.BC.18/21.04.048/2018-19 DATED 01.01.2019 |
| Exhibit4 | THE TRUE COPY OF THE STATEMENT DEPICTING LEVY OF EXCESS INTERESTS FROM THE 1ST PETITIONER'S ACCOUNT. |
| Exhibit5 | THE TRUE COPY OF THE STATEMENT OF ACCOUNT EVIDENCING THE LOSS INCURRED IN THE EXPORT SALE BETWEEN THE PERIOD OF 1ST APRIL 2020 TO 31ST MARCH 2021 |
| Exhibit6 | : THE TRUE COPY OF THE APPLICATION DATED 02.06.2020 FOR ECLGS SUBMITTED BY THE APPLICANTS TO THE RESPONDENT BANK |
| Exhibit7 | THE TRUE COPY OF THE MASTER CIRCULAR DATED 21.06.2020 ALONG WITH THE CIRCULAR DATED 23.05.2020 ISSUED BY THE NATIONAL CREDIT GUARANTEE TRUSTEE COMPANY |
| Exhibit8 | THE TRUE COPY OF THE APPLICATION DATED 01.01.2021 |
| Exhibit9 | THE TRUE COPY OF THE APPLICATION DATED 18.03.2021 SUBMITTED BY THE PETITIONERS FOR RESTRUCTURING OF THEIR ACCOUNTS |
| Exhibit10 | THE TRUE COPY OF THE REPLY LETTER DATED 29.07.2020 ISSUED BY THE RESPONDENT BANK |
| Exhibit11 | TRUE COPY OF THE MASTER CIRCULAR NO. RBI/2015- |
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16/338FIDD.MSME&NFS.BC.NO.21/06.02.31/20 15-16 DATED 17.03.2016
Exhibit12 THE TRUE COPY OF THE G.O NO. 643/2019 DATED 06.07.2019 Exhibit13 THE TRUE COPY OF THE RELEVANT PAGES OF THE BUDGET 2019-2020 OF THE KERALA STATE GOVERNMENT Exhibit14 THE TRUE COPY OF THE RELEVANT PAGES OF THE BUDGET 2020-2021 OF THE KERALA STATE GOVERNMENT Exhibit15 TRUE COPY OF THE UPDATED THE EMERGENCY CREDIT LINE GUARANTEE SCHEME ON 07.06.2021 Exhibit16 TRUE COPY OF THE CIRCULAR NO. 170/202021 DATED 24.06.2020 ALONG WITH ITS ANNEXURE Exhibit17 THE TRUE COPY OF THE CIRCULAR NO. 184/2021-22 DATED 04.10.2021 RESPONDENT EXHIBITS
Exhibit R1 S.13 (2) NOTICE DATED 7.11.2021ISSUED BY THE RESPONDENT TO THE PETITIONERS (TRUE COPY) Exhibit R2 PETITIONER'S REPLY DATED 27.11.2021 U/S 13 (3A) TO THE RESPONDENT TO EXT R-1. (TRUE COPY) Exhibit R3 RESPONDENT'S REPLY DATED 15.12.2021TO THE PETITIONERS TO EXT R-2 (TRUE COPY)
PETITIONER EXHIBITS
Exhibit-P23 TRUE COPY OF THE DAILY ORDER IN S.A. NO. 453 OF 2022 DATED 09.09.2022 BEFORE THE HON'BLE DRT-2.
3 issues framed by the court
Whether the Debts Recovery Tribunal is competent to consider challenges against the bank's recovery measures under Section 13(4) of the SARFAESI Act.
Whether the charging of excess interest and denial of recovery scheme benefits can be challenged in a writ petition when alternative remedies exist.
Whether the bank's initiation of recovery proceedings without following the prescribed committee procedure constitutes gross illegality.
4 provisions across 1 enactments
M/S. ALIN CASHEWS & Ors.
UCO BANK
V.G.ARUN
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
