Dismissed

Prithvi Agro Tech Private Limited, rep.by its Managing v. Bank Of India, rep.by its Zonal Manager

Telangana HC2 Mar 2012WP/18380/2011

Case brief

AI extract

What is this about?

Writ petition challenging the validity of a sale/auction notice under the SARFAESI Act was dismissed. The Court held that remedies for arbitrary action lie with the Debts Recovery Tribunal, not the High Court at this stage, and the bank was entitled to proceed after providing loan moratoriums.

What did the court decide?

The writ petition and the application for vacating the interim order were dismissed.

Prithvi Agro Tech Private Limited, rep.by its… — Banking and Recovery | Telangana HC (2012)

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THE HON’BLE SRI JUSTICE V.V.S.RAO AND

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THE HON’BLE SRI JUSTICE G.KRISHNA MOHAN REDDY

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WRIT PETITION No.18380 OF 2011

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02.03.2012

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Between:

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Prithvi Agro Tech Private Limited, Rep by its Managing Director Linga Durga Prasad And another.

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... Petitioners

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And

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The Bank of India, rep. by its Zonal Manager, Zonal Office, 2^nd floor, PTI Buildings, Opp. A.C.Guards, Lakdipool, Hyderabad, And another.

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... Respondents

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THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE G.KRISHNA MOHAN REDDY

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WRIT PETITION No.18380 OF 2011

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ORDER: (Per Hon’ble Sri Justice V.V.S.Rao)

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The first petitioner is a company engaged in the production and marketing of processed seed. The second petitioner is its Director. The first petitioner company availed from time to time since 1991-1992, various credit facilities like term loans, cash credit and Overdraft. In all, they availed eight loans over that period of time. It is the case of the petitioner that six loans were closed and entire loan amount was discharged. Insofar as cash credit of Rs.110 lakhs and term loan of Rs.289 lakhs, the petitioner’s case is that these loans were tie-up with reference to crop loans advanced to the farmers guaranteed by the first petitioner company.

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The petitioner filed instant writ petition alleging that even though the petitioner is regular in repayment of the loans, the first respondent issued notice of demand under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Act, for brevity) on 11.02.2009 calling upon the petitioner to pay the entire loan amount within sixty days. This was followed by another notice dated 01.03.2011 demanding payment. The petitioner then requested to permit them to opt for One Time Settlement (OTS). It is allegedly under consideration. In the meanwhile, the first

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respondent published sale/auction notice in Telugu Newspapers on 22.05.2011, aggrieved by which, petitioner filed the instant writ petition seeking invalidation of auction notice.

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While ordering notice before admission, this Court stayed all further proceedings pursuant to impugned sale/ auction notice. The respondents have now moved application being W.V.M.P.No.3154 of 2011 for vacating the interim order. As the controversy is in a narrow compass, the matter is being heard and is being disposed of finally.

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In the counter affidavit filed by the Chief Manager in Asset Recovery Branch of Bank of India, Hyderabad, the case of the respondents is as follows. The second respondent sanctioned crop loans to 500 farmers in 2002, aggregating to a sum of Rs.250 lakhs. This facility was extended on the request of the first petitioner who executed a Corporate Guarantee Deed dated 24.12.2002. On account of this, Rs.326 lakhs was outstanding. The first petitioner and the farmer loanees requested for postponement of repayment to the Kharif season, 2006. So as to help farmers, the respondents reviewed the crop loans and postponed the repayment till August, 2006. At this stage, at the request of the first respondent, WCTL limit of Rs.326 lakhs was sanctioned for conversion of outstanding liability under the crop loans. In the meanwhile, the petitioner also availed cash credit facility to a tune of Rs.110 lakhs, term loan of Rs.6,31,000/- and WCTL limit of Rs.285 lakhs. As the loan accounts became nonperforming assets, the bank invoked the provisions of the Act and issued notice of demand dated 23.08.2007 under Section 13(2) of the Act, which was followed by possession notice on 15.02.2009. The same was published in newspapers. Though the petitioner promised to pay an amount of Rs.50 lakhs in April, 2011, they did

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not fulfil the promise, and therefore, the bank was constrained to issue sale/auction notice dated 22.05.2011.

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The petitioner has not filed any reply affidavit denying the counter averments, and therefore, they stand proved.

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The counsel for petitioners vehemently submits that after issue of possession notice, the petitioner made certain payments and also opted for OTS, and therefore, invoking the provisions of the Act without considering the application for OTS is illegal and arbitrary. She also submits that if some time is given, the petitioners will pay the amount. These contentions are refuted by the counsel for Bank of India, who submits that the petitioner was given number of opportunities to clear the loans and at its instance, the repayment of loans to farmers was also rescheduled. In spite of such facility extended, the petitioner has not paid any amount and therefore, the impugned notice is sustainable.

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The power of the bank or financial institution to enforce security interest, if it becomes a non-performing asset, is not disputed. It is also not disputed that if the amount demanded in the notice under Section 13(2) of the Act is not paid within sixty days, the bank is entitled to take recourse to any of the measures under Section 13(4) of the Act. There is also no denial that the respondents followed the procedure before issuing the sale/auction notice. The other grievance that the bank did not accept the OTS proposal made by the petitioner or that the proposal of the first petitioner to clear the debts if the time is extended is not accepted, are the matters which cannot be gone into the writ petition. As held by the Supreme Court in United Bank of India v Satyawati Tondo n^[1] [2] and Kanaiyalal Lalchand Sachdev v State of Maharashtr a , if any person is aggrieved by any of the measures initiated by the bank or financial institution under Section 13(4) of the Act, the remedy

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is to approach the Debts Recovery Tribunal (DRT) having jurisdiction over the matter under Section 17(1) of the Act. If the DRT finds that the bank or financial institution acted in an arbitrary manner, it is always open to the DRT to declare the recourse to any one or more measures taken under Section 13(4) of the Act as invalid and restore possession to the borrower (Indian Overseas [3] Bank v Ashok Saw Mil l ) . The DRT is vested with wide powers to set right any capricious or arbitrary action of the bank or financial institution. Therefore, at the stage of sale/auction notice, this Court cannot interfere. If the property/security is not already auctioned, it is always open to the petitioner to approach the bank under Section 13(8) of the Act and pay the dues, in which event, the bank is required to take action as contemplated thereunder. Except making these observations, no relief can be granted to the petitioner.

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The writ petition, with the above observations, is dismissed. The WPMP shall stand dismissed. No costs.

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_______________ (V.V.S.RAO, J)

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________________________________ (G.KRISHNA MOHAN REDDY, J)

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02.03.2012 pln

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[1] (2010) 8 SCC 110 : AIR 2010 SC 311 [2] (2011) 2 SCC 782 : 2011 (8) SCJ 484 [3] (2009) 8 SCC 366 : 2009 (8) SCJ 979

Prithvi Agro Tech Private Limited, rep.by its Managing v. Bank Of India, rep.by its Zonal Manager

Case brief

What is this about?

What did the court decide?

Prithvi Agro Tech Private Limited, rep.by its Managing v. Bank Of India, rep.by its Zonal Manager

Case brief

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What did the court decide?

What the court decided

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