Dismissed

M/s Susheela Educational Society v. The Authorised Officer

Telangana HC19 Jun 2013WP/39324/2012

Case brief

AI extract

What is this about?

The High Court dismissed a writ petition challenging a Section 13(2) notice issued by a bank. It held that the petitioner must exhaust statutory remedies under the SARFAESI Act and distinguished the precedent on educational institutions as the mortgaged property belonged to the society, not the institution.

What did the court decide?

Petitioner's writ petition and miscellaneous applications dismissed; no order as to costs.

M/s Susheela Educational Society Vs The Authorised… — Banking and Recovery | Telangana HC (2013)

¶1

THE HON’BLE SRI JUSTICE N.V. RAMANA AND

¶2

THE HON’BLE SRI JUSTICE VILAS V. AFZULPURKAR

¶3

Writ Petition No. 39324 of 2012

¶4

DATED:19-06-2013

¶5

Between:

¶6

M/s. Susheela Educational Society, rep., by its President Sri Gilaka Brahmaiah, S/o. Sri Ramanaiah, H.No.8-2-289/8/1/B, Road No.14, Banjara Hills, Hyderabad 500 034

¶7

… Petitioner

¶8

And

¶9

The Authorised Officer, State Bank of India, SME Saifabad Branch07315, Hyderabad

¶10

… Respondent

¶11

THE HON’BLE SRI JUSTICE N.V. RAMANA AND THE HON’BLE SRI JUSTICE VILAS V. AFZULPURKAR

¶12

Writ Petition No. 39324 of 2012

¶13

ORDER: (per the Hon’ble Sri Justice N.V. Ramana)

¶14

This writ petition is filed seeking a writ of mandamus to declare the notice dated 01-11-2012 issued under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the SERFAESI Act’), by the respondent/Bank, as arbitrary and illegal.

¶15

The petitioner states that it is an educational society registered in the year 2007 under the Andhra Pradesh Societies Registration Act, 2001 with the object of undertaking development of education, training and research in any field, including technical and medical aid. The society having acquired all statutory approvals and permissions to promote education, approached the respondent/Bank for availing financial facilities in the year 2008 and the Bank initially advanced a sum of Rs.3.00 crores as medium term loan against the mortgage of immovable property admeasuring an extent of Acs.10.21¼ cents situated in Nellore District belonging to the society and other personal properties belonging to the guarantors which are situated at different places in Hyderabad, by fixing the repayment schedule as 24 quarterly instalments, each quarterly instalment of Rs.8.50 lakhs, starting from January, 2010. As the loan availed by the petitioner/society was not sufficient for the civil works which were in progress, it further requested the Bank to sanction additional term loan of Rs.2.00 crores repayable in 24 quarterly instalments commencing from January, 2010. It is

¶16

stated that the existing limits were further enhanced to an amount of Rs.10.00 crores. The respondent/Bank has granted the facility of repaying the amount in 20 quarterly instalments commencing from 3107-2011 and the petitioner was accordingly making the payments. The petitioner is said to have repaid an amount of Rs.660.66 lakhs as against the payment of Rs.460 lakhs, excluding interest. According to the petitioner, the repayment schedule was fixed on the basis of the admissions in the engineering college i.e., 100% occupation and during the past two years, the admissions have come down drastically for different reasons prevailing in the State. For the academic year 2012-2013, the percentage of admissions was 54.17 and thus, the cash flow has come down which lead the petitioner to commit default. It is also stated that 57% of the admission amount is not coming directly to the society as the same has to be reimbursed by the State in view of the rules prevailing in the State. Thus, there is a delay in repayment of the outstanding amount. Under the circumstances, the petitioner had requested the respondent/Bank to reschedule the payment, but the same was not considered.

¶17

According to the petitioner, with a legitimate expectation of 100% admission, it had accepted the repayment schedule as fixed by the Bank, but because of lack of admissions, it could not comply with the schedule. While so, the respondent/Bank issued demand notice dated 01-11-2012 to the petitioner and its mortgager under Section 13 (2) of the SERFAESI Act demanding to pay an amount of Rs.9,03,85,649/within 60 days from the date of notice, and it submitted its reply to the same on 17-11-2002, but the Bank replied to the said notice without giving any reasons for rejecting the objections by it. Hence, the writ petition.

¶18

The respondent/Bank filed its counter stating that the Bank has already passed order under Section 13(2) of the Act and that one of the guarantors viz., M/s. Taneesh Constructions has approached the Debts Recovery Tribunal, Hyderabad, by filing S.A No. 191 of 2013. It

¶19

is stated that the matter was heard and reserved for orders.

¶20

Learned counsel for the petitioner contended that this Court exercising jurisdiction under Article 226 of the Constitution of India can set aside the impugned notice because the loan of the petitioner has been classified as non-performing asset (NPA) without following the procedure contemplated under the Act. It is also contended that as per the judgment of this Court in M. Radhakrishna Moorthy vs. District Educational Officer, Ongole^[1] , properties belonging to educational institutions cannot be proceeded against by the banks.

¶21

Heard the learned counsel at length and perused the material placed before us.

¶22

In order to appreciate the first contention of the petitioner that as the loan of the petitioner has been classified as non-performing asset (NPA) without following the procedure contemplated under the Act, this Court can entertain the writ petition, it is apposite to refer to paragraphs 42, 43, 44, 45, 54 and 55 of the judgment of the Supreme Court in Union Bank of India vs. Satyawati Tondon^[2] which read as under:

¶23

“42. There is another reason why the impugned order should be set aside. If respondent 1 had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14, then she could have availed remedy by filing an application under Section 17(1). The expression “any person” used in Section 17(1) is of wide import. It takes within its fold, not only the borrower but also guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective.

¶24

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

¶25

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 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, 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.

¶26

44. While expressing the aforesaid view, we are conscious that the powers conferred upon the High Court under Article 226 of the Constitution to issue to any person or authority, including in appropriate cases, any Government, directions, orders or writs including the five prerogative writs for the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of that power but, at the same time, we cannot be oblivious of the rules of self-imposed restraint evolved by this Court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution.

¶27

45. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom any reason why the High Court should entertain a petition filed under Article 226 of the Constitution and pass interim order ignoring the fact that the petitioner can avail effective alternative remedy by filing application, appeal, revision, etc. and the particular legislation contains a detailed mechanism for redressal of his grievance.

¶28

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

¶29

case falls within any of the exceptions carved out in Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad AIR 1969 SC 556, Whirlpool Corpn v. Registrar of Trade Marks, Mumbai (1998) 8 SCC 1 and Harbanslal Sahnia v. Indian Oil Corporation Ltd. (2003) 2 SCC 107 and some other judgments, then the High Court may, after considering all the relevant parameters and public interest, pass appropriate interim order.

¶30

54. In Modern Industries v. SAIL (2010) 5 SCC 44, the Court held that where the remedy was available under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, the High Court was not justified in entertaining a petition under Article 226 of the Constitution.

¶31

55. 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 SARFAESI Act and exercise jurisdiction under Article 226 for 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.”

¶32

In view of the above decision, it is clear that when an alternative and efficacious statutory remedy is available, this Court should not entertain the writ petition. Apart from this, one of the guarantors is stated to have already approached the Debts Recovery Tribunal, Hyderabad.

¶33

Insofar as the second contention of the petitioner that the properties of educational institutions cannot be proceeded against, it is pertinent to mention that in the case on hand, the property on which the mortgage was created does not belong to the educational institution but of the society. In view of the same, the decision of this Court in M. Radhakrishna Moorthy ‘ case (1 supra) is not applicable to the facts on hand and, hence, the contention of the petitioner also does not merit consideration.

¶34

For the aforesaid reasons, the writ petition fails and it is

¶35

accordingly dismissed. Miscellaneous applications, if any, pending shall also stand dismissed. No order as to costs.

¶36

N.V. RAMANA, J

¶37

VILAS V. AFZULPURKAR, J

¶38

19^th June, 2013 ks

¶39

[1] AIR 2001 AP 352