Allowed

M/S Purnea Cold Storage v. the State Bank of India and Anr.

Patna HC27 Aug 2012CWJC/8746/2012

Case brief

AI extract

What is this about?

The Patna High Court held that a bank cannot institute DRT proceedings under Section 19 of the DRT Act after initiating SARFAESI proceedings under Section 13(2), as it must exhaust SARFAESI remedies first per Section 13(10).

What did the court decide?

Bank restrained from taking steps or proceeding with O.A. No.83/2011 pending before the Debts Recovery Tribunal, Patna.

M/S Purnea Cold Storage Vs the State Bank of India and Anr. — Banking and Recovery | Patna HC (2012)

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IN THE HIGH COURT OF JUDICATURE AT PATNA Civil Writ Jurisdiction Case No.8746 of 2012

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====================================================== M/S Purnea Cold Storage, a Proprietorship concern through its proprietor Amar Nath Tiwari Son Of Late Bibhuti Nath Tiwari Resident of MohallaMadhubani, P.S. K. Hat, District-Purnea

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.... .... Petitioner

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Versus 1. The State Bank Of India through the Deputy General Manager/Authorized Officer, State Bank of India, Stressed Assets Management Branch (SAMB), Fifth Floor, Administrative Office, J.C. Road, Patna-800001 2. The Presiding Officer, Debt Recovery Tribunal 34, Bank Road, Opp. New Police Line, Patna-800001 .... .... Respondents ====================================================== Appearance : For the Petitioner : Mr. Arbind Kumar Jha, Advocate For the Respondents : Dr. Binay Kumar Singh, Advocate ====================================================== CORAM: HONOURABLE MR. JUSTICE JAYANANDAN SINGH ORAL ORDER

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4 27-08-2012 In view of the pure question of law raised by learned counsel for the petitioner, detail facts of the case are not required to be noticed. It is not required to deal with history of loan taken by the petitioner in 1992 from the local Branch of respondent-State Bank of India (hereinafter referred to as „the Bank‟), its repayment, further fresh financial assistance granted by the United Bank of India as well as by the Bank and restructuring of its loan through agreement dated 31.08.2009 in view of the functioning of petitioner-Cold Storage getting affected by unprecedented flood in Koshi Region in 2009.

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Suffice is to notice that loan account of petitioner was classified as NPA on 20.12.2009 i.e. barely three months after

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the agreement for restructuring the loan was entered into. Consequently, a notice under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short, “SARFAESI Act”) was issued to petitioner on 16.06.2010, vide Annexure-1. Barely two months thereafter, i.e. on 18.08.2010, Bank also filed an application before the Debts Recovery Tribunal (in short, „ the Tribunal‟) under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (in short, „DRT Act‟) read with Rule 4 of the Debt Recovery (Procedure) Rule 1993. The said application was registered as O.A. No. 83 of 2011. Since Bank had resorted to take steps under both the Acts simultaneously as per remedy provided under the respective Acts, petitioner challenged the action of the Authorized Officer under the SARFAESI Act before the Tribunal under Section 17, which was registered as S.A. No.81 of 2011. Simultaneously, petitioner also raised a preliminary objection in O.A. No.83 of 2011 in respect of its maintainability. The appeal of the petitioner namely, S.A.No.81 of 2011 was disposed of by the Tribunal by order dated 18.01.2012, vide Annexure-3, by which petitioner was directed to file representation to the notice under Section 13(2) of the

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SARFAESI Act including in it its challenge to the maintainability of the O.A. also and Bank was directed to consider the same in accordance with law with communication of its result to the petitioner. Petitioner, accordingly, filed his objection on 02.02.2012, vide Annexure-4, and received its reply through learned counsel of the Bank, vide Annexure-2 dated 18.02.2012, rejecting the stand of the petitioner that during the pendency of a SARFAESI proceeding, action could not be initiated under the DRT Act. This reply has given a cause of action to the petitioner to approach this Court raising a pure question of law as to whether after initiation of a proceeding under SARFAESI Act and during its pendency, Bank has any authority to initiate a proceeding before the Tribunal under Section 19 of the DRT Act or not.

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Learned counsel for the petitioner submitted that the Apex Court, in the case of M/s Transcore Vs. Union of India (AIR 2007 Supreme Court 712) = [(2008) 1 Supreme Court Cases 125], has authoritatively held the converse situation as possible as it found that both the Acts were complementary to each other since SARFAESI Act was enacted to fill up gaps in DRT Act by providing an additional remedy to the secured creditors or financial institutions for recovery of their debts on

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the basis of crystallized liability of the borrowers to repay and as such, the doctrine of election was not applicable. But he submitted that, so far as initiation of a proceeding before the Tribunal under Section 19 of the DRT Act, during the pendency of a proceeding under SARFAESI Act, was concerned, the principles laid down by the Apex Court in M/s Transcore (supra) were not applicable in view of sub-section (10) of Section 13 of the SARFAESI Act read with Rule 11(1) of the Security Interest (Enforcement) Rules 2002. Hence, he submitted that, once the Bank has initiated a proceeding against the petitioner under the SARFAESI Act, it was debarred from initiating any other parallel proceeding under the DRT Act for realization of any amount of the same loan, till it exhausts all the steps laid down in Section 13 of the former Act and in particular, sub-section (4) thereof.

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In view of the pure question of law raised by learned counsel for the petitioner in the case, learned counsel for the Bank did not propose to file any counter affidavit. However, in reply, he submitted that since the Apex Court in the case of M/s Transcore (supra) has held that both the Acts are complementary to each other and doctrine of election does not apply in the matters for choosing a remedy provided in either of

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the Act, it was perfectly justified and legal for the Bank to have initiated a proceeding before the Tribunal under DRT Act also, while pursuing its remedy under the SARFAESI Act.

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In M/s Transcore (supra), question fell for consideration before the Apex Court was whether a bank or financial institution, having elected to seek its remedy in terms of DRT Act, could still invoke the provisions of SARFAESI Act (referred as NPA Act 2002 in the judgment) for satisfying its debts from the secured assets of the borrower, without withdrawing or abandoning the O.A. under the DRT Act. After noticing the scheme of DRT Act and SARFAESI Act, and reasons behind enactment of the latter, the Apex Court, in paragraph 14 of the judgment, observed as follows :-

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“There is one more reason for enacting NPA Act, 2002. When the civil courts failed to expeditiously decide suits filed by the banks/ FIs., Parliament enacted the DRT Act, 1993. However, the DRT did not provide for assignment of debts to securitization companies. The secured assets also could not be liquidated in time. In order to empower banks or FIs. to liquidate the assets and the secured interest, the NPA Act is enacted in 2002. The enactment of NPA Act is, therefore, not in derogation of the DRT Act. The NPA Act removes the fetters which were in existence on the rights of the secured creditors. The NPA Act is inspired by the provisions of the State Financial Corporations Act, 1951 ("SFC Act"), in particular Sections 29 and

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31 thereof. The NPA Act proceeds on the basis that the liability of the borrower to repay has crystallized; that the debt has become due and that on account of delay the account of the borrower has become sub-standard and non-performing. The object of the DRT Act as well as the NPA Act is recovery of debt by non-adjudicatory process. These two enactments provide for cumulative remedies to the secured creditors. By removing all fetters on the rights of the secured creditor, he is given a right to choose one or more of the cumulative remedies. The object behind Section 13 of the NPA Act and Section 17 r/w Section 19 of the DRT Act is the same, namely, recovery of debt. Conceptually, there is no inherent or implied inconsistency between the two remedies. Therefore, as stated above, the object behind the enactment of the NPA Act is to accelerate the process of recovery of debt and to remove deficiencies/ obstacles in the way of realisation of debt under the DRT Act by the enactment of the NPA Act, 2002.

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Thereafter while dealing with the provisions of Section 13 of SARFAESI Act, the Apex Court, in paragraph 23 of the judgment, held that the section provided for liquidation of liability and enforcement of security interest. Hence the remedies of enforcement of security interest under the NPA Act and DRT Act are complementary to each other and there is no inherent or implied inconsistency between these two remedies under the two Acts. Therefore, the doctrine of election has no application in this case.

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While analyzing the provisions of the said two Acts, the Apex Court also took notice of the provisions of sub-section (10) of Section 13 of the SARFAESI Act and in paragraph 24 of its judgment, its observations, in respect of sub-section (10), were as follows:

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“Section 13(10) inter alia states that where the dues of the secured creditor are not fully satisfied by the sale proceeds of the secured assets, the secured creditor may file an application to DRT under Section 17 of the NPA Act for recovery of balance amount from the borrower. Section 13(10), therefore, shows that the bank/ FI is not only free to move under NPA Act with or without leave of DRT but having invoked NPA Act, liberty is given statutorily to the secured creditors (banks/ FIs.) to move the DRT under the DRT Act once again for recovery of the balance in cases where the action taken under Section 13(4) of the NPA Act does not result in full liquidation of recovery of the debts due to the secured creditors. Section 13(10) fortifies our view that the remedies for recovery of debts under the DRT Act and the NPA Act are complementary to each other. Further, Section 13(10) shows that the first proviso to Section 19(1) of DRT Act is an enabling provision and that the said provision cannot be read as a condition precedent to taking recourse to NPA Act.

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In the case of United Bank of India Vs. Satyawati Tandon [(2010) 8 Supreme Court Cases 110], primary consideration before the Apex Court was in respect of

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interference by the High Courts under Article 226 of the Constitution of India in a proceedings under the SARFAESI Act, in view of efficacious alternative remedy provided by the Act under Section 17 to any aggrieved party to move the Tribunal. The Court found that power of the Tribunal under Section 17 of the Act was very wide. Hence it was not appropriate for a High Court to interfere in a proceeding under the SARFAESI Act, except under the contingency, as noticed in paragraph 46 of the judgment. In this judgment also, the Apex Court noticed the provisions of sub-section (10) of Section 13 but without any further analysis.

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So far as validity of initiation and maintainability of a proceeding under SARFAESI Act during the pendency of an O.A. application before the Tribunal under DRT Act, the views of the Apex Court in M/s Transcore (supra) are law of the land in terms of Article 141 of the Constitution of India. However, in the present case the situation is converse. Admittedly, in this case the Bank has initiated a proceeding under SARFAESI Act earlier by issuing a notice under Section 13(2). Thereafter it has taken steps for invoking jurisdiction of the Tribunal under DRT Act also by filing an application under Section 19 of DRT Act. Whether this course of action is permissible for a bank or

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financial institution is a question raised by the learned counsel for the petitioner in this case. The Apex Court in M/s Transcore (supra) has found that both the Acts are complementary to each other and there was no provision in either of the Acts to debar initiation of a proceeding under the SARFAESI Act during the pendency of a proceeding under the DRT Act. But this cannot be disputed that in view of the provisions of Section 35 of the SARFAESI Act, its provisions have overriding effect over other laws, while saving the application of other laws, including the DRT Act, by virtue of the provisions of Section 37. Hence, if SARFAESI Act provides for remedy and lays down procedure thereof, recourse to it would have an overriding effect on any provision or recourse to a remedy under any other Act. This situation, as has rightly been pointed out by learned counsel for petitioner, stands clarified by sub-section (10) of Section 13 of the SARFAESI Act, as reproduced hereinbelow:-

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“Section 13

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(10 ) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent Court, as the case may be, for recovery of the balance amount from the borrower.”

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Patna High Court CWJC No.8746 of 2012 (4) dt.27-08-2012

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It is amply clear that this sub-section lays down that, when the sale proceeds of the secured assets, put on auction sale under the provisions of SARFAESI Act, is not found sufficient to satisfy the debts, then only a bank or financial institution has the liberty to file an application before the „Debts Recovery Tribunal having jurisdiction or to a competent Court, as the case may be, for recovery of the balance amount from the borrower‟. Sub-rule (1) of Rule 11 prescribes for filing an application in terms of Sub-section (10) of Section 13 in the Form annexed as Appendix (VI) to the Rules. This Form shows that at the time of filing of the application, a declaration has to be made that the matter, regarding which application was being made, was not “pending before any court of law or any other authority or any Bench or Tribunal”. Thus, reading the said provisions of SARFAESI Act, together with the Legislative intent emanating from the same, it is clear that if a secured creditor chooses to initiate a proceeding against a borrower under the SARFAESI Act, it is required to take all possible steps under the Act to satisfy its debts and it could take steps for realization of remainder of its debts, under any other law, only after provisions of SARFAESI Act were exhausted.

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In the circumstances, this Court finds that action of the

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Bank by filing application under Section 19 of the DRT Act, after initiation of the proceeding against petitioner under SARFAESI Act by issuing a notice under Section 13(2) of the Act, was without jurisdiction and beyond any authority of law. As a result, this Court allows the prayer of petitioner and restrains the Bank from taking steps and proceeding with its O.A. No.83/2011 pending before the Debts Recovery Tribunal, Patna.

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This writ application is, accordingly, allowed.

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(Jayanandan Singh, J)

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B.T/-

M/S Purnea Cold Storage v. the State Bank of India and Anr.

Case brief

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M/S Purnea Cold Storage v. the State Bank of India and Anr.

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