Disposed

Mr. Srinivasan Gokuldas v. State Bank of India

Madras HC11 Mar 2014WP(MD)/4232/2014

Case brief

AI extract

What is this about?

This writ petition challenged an auction notice under the SARFAESI Act, claiming certain movable properties were not hypothecated and belonged to the petitioner. The Court held that factual disputes regarding asset ownership must be adjudicated by the Debts Recovery Tribunal and denied interference, while granting an interim stay on possession delivery.

What did the court decide?

Writ petition dismissed; Bank directed not to hand over possession of machineries for seven days to allow petitioner time to approach the DRT under Section 17 of SARFAESI Act.

Mr. Srinivasan Gokuldas Vs State Bank of India — Banking and Recovery | Madras HC (2014)

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BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED :11.03.2014 CORAM THE HONOURABLE MR.JUSTICE V.RAMASUBRAMANIAN and THE HONOURABLE MS.JUSTICE V.M.VELUMANI

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Writ Petition (MD)No.4232 of 2014 and

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M.P.(MD)No.1 of 2014

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Srinivasan Gokuldas, S/o.Gokuldas Raju Naidu. ... Petitioner

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Vs.

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1.State Bank of India, Stressed Asset Management Branch, No.1112, Raja Plaza, Avinasi Road, Coimbatore-641 037. (formerly in Chennai).

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2.State Bank of India, Commercial Branch, Coimbatore-641 018.

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3.M/s.Ari Fabrics Ltd., rep.by its Managing Director, 222-A, Race Course Road,

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Coimbatore-641 018.

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4.M/s.Sri Krishna Vijayam Spinning Mills Ltd., Palani-Udumalpet Road, Chithrakulam P.O., Palani-624 621.

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5.S.K.Karthikeyan, S/o.Kalidasan, 222-A, Race Course Road,

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Coimbatore-641 018.

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... Respondents

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Writ petition under Article 226 of the Constitution of India, praying for issuance of a writ of certiorarified mandamus, calling for the records of the 1^st respondent with respect o the sale notice, dated 09.02.2014, published in the one Edition of Tamil Daily "Thina Malar", dated 09.02.2014, quashing the sale notice insofar as the plant and machineries detailed in the Scheduled to this writ petition and consequently forbearing the respondents 1 and 2 from bringing the same for sale, by public auction or otherwise under the provisions of SARFAESI Act.

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For Petitioner : Ms.S.Anandha Gomathi

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Sivakumar for M/s.S.D.Venkateswaran

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ORDER

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(Order of the Court was made by V.RAMASUBRAMANIAN,J) https://hcservices.ecourts.gov.in/hcservices/ The petitioner has come up with the above writ petition, challenging an e-auction notice issued by the State Bank of India, in

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terms of the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short "SARFAESI Act") read with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Rules, 2002.

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2.Heard Ms.Ananda Gomathi Sivakumar, learned counsel for

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the petitioner.

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3.The 4^th respondent is a Spinning Mill and it is a subsidiary of the 3^rd respondent Company. The 3^rd respondent, admittedly, availed credit facilities from the State Bank of India and the 4^th respondent stood guarantee. The 5^th respondent appears to be the promoter of both the 3^rd and the 4^th respondent companies.

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4.After the respondents 3 and 4 committed default in payment of the amounts due under the facilities granted to them, the petitioner entered into an agreement on 13.02.2008 with the 5^th respondent, for taking over both the 3^rd and the 4^th respondent companies. The petitioner appears to have entered into the said agreement, with eyes wide open to the fact that the respondents 3 and 4 are indebted to the State Bank of India and that their account had already become a non-performing asset. Therefore, the petitioner has actually taken a calculated risk.

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5.The Bank issued a notice under Section 13(2) of SARFAESI Act on 13.02.2010. It was followed by a possession notice under Section 13(4) of SARFAESI Act and the Bank also took possession on 04.01.2011.

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6.But, it appears that, in the meantime, the petitioner filed a petition for Arbitration in O.P.No.114 of 2010, purportedly raising a bogey of a dispute. The petitioner claims that after he took over the industrial undertakings of the respondents 3 and 4, in pursuance of the agreement dated 13.02.2008, he had installed his own machineries and that he had also made some payments to the Bank.

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7.However, after taking possession of the immovable and movable properties on 04.01.2011, the State Bank of India issued a sale cum tender notice on 15.10.2011. The auction was fixed for on 21.11.2011. Immediately, the petitioner filed a civil suit in O.S.No.297 of 2011 on the file of the Sub-Court, Palani, praying for a decree of permanent injunction restraining the Bank from in any manner dealing with the machineries that the petitioner claims to have purchased out of his own funds and which he claimed to have not formed part of the security interest created in favour of the Bank.

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8.Interestingly, the suit was filed at the last minute, just three days before the date of the auction, though the notice for auction had been issued more than 30 days in advance. Along with the suit, the petitioner also moved an application for injunction restraining the Bank from bringing the machineries to sale. In the said application in I.A.No.732 of 2011, the Sub-Court, Palani, granted an interim order of injunction, which was made absolute on 18.01.2012. However, the plaint in the said suit was subsequently rejected on an application taken out by the Bank in I.A.No.141 of 2012 under Order VII, Rule 11 CPC, by order dated 06.08.2013. Thus, the impediment created by the petitioner in the https://hcservices.ecourts.gov.in/hcservices/ form of a civil suit was ultimately removed with the rejection of the plaint.

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9.Thereafter, the Bank issued the e-auction notice, which is impugned in the present writ petition. The e-auction notice was actually published in the News Paper on 09.02.2014, fixing the date of auction as 12.03.2014. Therefore, as expected, the petitioner has come up with the above writ petition at the last minute, after waiting for a period of about four weeks.

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10.The only ground on which the petitioner challenges the impugned auction notice is that the movable properties which he purchased out of his own funds and installed in the factory premises of respondents 3 and 4 were never hypothecated to the Bank and that therefore they do not form part of the secured assets within the meaning of Section 2(zc) of SARFAESI Act. According go the petitioner, no security interest, within the meaning of Section 2(zf) SARFAESI Act, was created in favour of the Bank and that therefore the Bank was not entitled to bring the properties not hypothecated with them to sale, in terms of the provisions of SARFAESI Act.

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11.But, on the above ground, we do not think that this Court would interfere with the auction. Under the guise of entering into an agreement for the take over of the mills, obviously, behind the back of the Bank, the petitioner had actually prevented the Bank from enforcing their rights over the secured assets for the past nearly three years. The petitioner took over the industrial undertakings after they became non-performing assets and from the year 2010, the petitioner has effectively prevented the Bank from bringing the properties to sale. Today, the sole ground on which he challenges the impugned notice is that the properties mentioned in the affidavit were purchased by him and they do not constitute security interest.

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12.But, the above contention is actually a question of fact. If the Bank disputes the claim made by the petitioner, it would actually become a disputed question of fact into which this Court would not go, under Article 226 of the Constitution.

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13.The petitioner has an effective alternative remedy under Section 17 of SARFAESI Act. As a matter of fact, the question whether a property was hypothecated to the Bank or not is a pure question of fact on which the Tribunal is entitled to adjudicate under Section 17 of SARFAESI Act. The case on hand is not one of those cases where the petitioner can be permitted to short circuit the alternative remedy.

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14.Interestingly, the borrowers have not objected to the sale. The petitioner claims to have stepped into the shoes of the borrowers. Therefore, he cannot have a much better right than the borrowers.

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15.In view of the above, we find no reason to entertain the writ petition. The impugned auction notice was issued on 09.02.2014. The petitioner still has time to move the Debts Recovery Tribunal under Section 17 of SARFAESI Act. The only apprehension of the learned counsel for the petitioner is that if auction is conducted and sale is confirmed and possession is also handed over, the petitioner will be left https://hcservices.ecourts.gov.in/hcservices/ remediless.

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16.There appears to be some force in the above contention. The present situation is a making of the petitioner. Therefore, he has to blame himself. In any case, the above apprehension can be safeguarded to a limited extent by this Court by issuing proper directions. If the petitioner moves the Debts Recovery Tribunal within seven days from the date of receipt of a copy of this order, the Tribunal shall not reject the application solely on the ground that the prayer had become infructuous. In order to ensure that the statutory remedy of appeal under Section 17 of SARFAESI Act does not become meaningless to the petitioner, we hereby direct the Bank not to hand over the possession of the machineries, which the petitioner claims to be his own, for a period of seven days from the date of receipt of a copy of this Order. If the petitioner is able to secure any interim order from the Tribunal within the said period, the fate of the auction shall follow the said interim order. If the petitioner is unable to secure any interim order within the seven days from the date of receipt of a copy of this order, then it will be open to the Bank to hand over possession to the auction purchaser.

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17.The writ petition is disposed of on the above terms. No costs. Connected M.P.(MD)No.1 of 2014 is closed.

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Sd/-

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Assistant Registrar(Crl.side)

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/True copy/

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Sub Assistant Registrar

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1.State Bank of India,

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Stressed Asset Management Branch, No.1112, Raja Plaza, Avinasi Road,

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Coimbatore-641 037.

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(formerly in Chennai).

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2.State Bank of India,

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Commercial Branch,

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Coimbatore-641 018.

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+1cc to Mr.S.D.Venkateswaran, Advocate in Sr.14983

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W.P.(MD)No.4232/2014 and M.P.(MD)No.1/2014 Dated:11.03.2014

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pbk 12/03/2014 ::4p-4c:(IT)

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https://hcservices.ecourts.gov.in/hcservices/

Mr. Srinivasan Gokuldas v. State Bank of India

Case brief

What is this about?

What did the court decide?

Mr. Srinivasan Gokuldas v. State Bank of India

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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