Partly allowed

M/s. O.R. Distilleries Limited, v. Indian Bank, Chittoor Main Branch

Telangana HC10 Mar 2014WP/5504/2014

Case brief

AI extract

What is this about?

The High Court held that while an effective statutory remedy exists under the SARFAESI Act, the writ petition is maintainable due to a prima facie statutory violation. The court modified the Tribunal's order, directing the petitioner to deposit 20% instead of 30% of the claimed amount.

What did the court decide?

The order of the Debt Recovery Tribunal directing a 30% deposit was modified to direct the petitioner to deposit 20% of the claimed amount within two months.

M/s. O.R. Distilleries Limited, Vs Indian… — Contract and Commercial Disputes | Telangana HC (2014)

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HON’BLE SRI JUSTICE ASHUTOSH MOHUNTA AND HON’BLE SRI JUSTICE M. SATYANARAYANA MURTHY

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WRIT PETITION No.5504 of 2014

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ORDER: (Per the Hon’ble Sri Justice M. Satyanarayana Murthy)

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M/s. O.R. Distilleries Limited filed this petition under Article 226 of Constitution of India challenging the docket order dated 30.01.2014 passed in S.A.No.21 of 2014 by the Debt Recovery Tribunal2^nd respondent herein, wherein the petitioner was directed to deposit 30% of the amount claimed by the 1^st respondent Bank in its auction notice dated 26.12.2013.

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2. The petitioner challenged the notice issued under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short `the SARFAESI Act') by filing an application (SA) under Section 17 of the SARFAESI Act. But without considering the objections submitted by the writ petitioner, the

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1^st respondent issued a notice under Section 13(4) of the SARFAESI Act dated 19.11.2013 for sale of the property. Now the petitioner challenged both the notices by filing SA.No.21 of 2014 before the 2^nd respondent on various grounds, mostly questioning that the declaration of account of the plaintiff as non-performing asset (NPA) is against the Rules under the SARFAESI Act and demand notice was not properly served, more particularly, in compliance of proviso to Section 3(1) of the Security Interest Enforcement Rules, 2002 as such there is no proper and valid demand and thereby the 1^st respondent cannot issue a notice under Section 13(4) of the SARFAESI Act. The petitioner also raised several grounds questioning the notices under Sections 13(2) and 13(4) of the SARFAESI Act which we are concerned, since, the SA is pending before the Tribunal. The Tribunal

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is required to enquire into and decide the objections on the notices issued under Sections 13(2) and 13(4) of the SARFAESI Act.

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3. The 2^nd respondent though made certain observations with regard to non-compliance of procedure laid down under Rule 4 of the Rules framed under the SARFAESI Act, directed the petitioner to deposit 30% of the amount demanded in SA.No.21 of 2014 which is untenable and it is an erroneous order, finally prayed to set aside the impugned order passed by the 2^nd respondent by issuing a Writ of Mandamus.

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4. During the course of arguments, the learned counsel for the writ petitioner mainly contended that when there is a statutory violation, a writ can be maintained though alternative remedy is available under the statute and this Court can exercise its extraordinary powers under Article 226 of Constitution of India. Even according to the observation made by the 2^nd respondent in the impugned order, there is a statutory violation prima facie which is required to be enquired into by the 2^nd respondent, in such case, this Court can entertain writ petition and pass appropriate orders.

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5. Per contra, learned counsel for the respondents contended that when a statutory remedy is available the Court cannot entertain a petition under Article 226 of Constitution of India and interfere with the proceedings and prayed to dismiss the petition.

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6. Basing on the arguments advanced at the stage of admission, the points that arise for consideration are as follows:

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1) Whether an effective alternative efficacious statutory remedy is available to the petitioner to question the order impugned, if so, whether this Court can exercise its power under Article 226 of Constitution of India?

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2) Whether the impugned order passed by the 2^nd

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respondent in SA.No.21 of 2014 dated 30.01.2014 requires interference of this Court?

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Point No.1:

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7. The first and foremost contention of the learned counsel for the petitioner is that the impugned docket order passed by the

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2^nd respondent in SA.No.21 of 2014 is arbitrary. Since, there is violation of Rules framed under the SARFAESI Act, even according to the observation made in the order which required to be considered during enquiry in the SA. However, a direction to deposit 30% is harsh. Therefore, when there is a statutory violation by the

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1^st respondent in issuing notices under Sections 13(2) and 13(4) of the SARFAESI Act, the writ petition is maintainable.

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8. The counsel for the respondents contended that when efficacious remedy is available under the statute, this Court cannot exercise its power under Article 226 of Constitution of India.

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9. No doubt any order passed by the 2^nd respondent under Section 17 can be challenged by any person by way of an appeal under Section 18 which provides an effective and efficacious statutory remedy. But when there is a statutory violation, this Court can exercise its power under Article 226 of Constitution of India.

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10. In the recent judgment reported in T.P. VISHNU KUMAR Vs.

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CANARA BANK, P.N. ROAD, TIRUPPUR AND OTHERS^[1] where the Supreme Court held that the power under Article 226 of Constitution of India cannot be invoked unless there is statutory violation resulting in prejudice to party or where such proceedings or action is wholly arbitrary, unreasonable and unfair.

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11. In the instant case on hand, the 2^nd respondent passed the following docket order dated 30.01.2014:

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“Heard the learned counsels on both sides. The respondent Bank even though filed copies publications and postal

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acknowledgments and India post track details of delivery, claiming to be in respect of the service of demand notice, possession notice and the sale notice on the applicant, the copies of the said demand notice, possession notice and the sale notice in its material documents. Further, even though it has been contended by the Respondent Bank that the Respondent Bank has sent a suitable reply dated 17.10.2013 u/s.13(3A) to the objections taken by the Applicant for the issuance of demand notice, the Respondent Bank has not filed any copy of the said reply, including the proof of service of such reply on the applicant. According to the copy of the publication of the possession notice dt.19.11.2013, the respondent bank has taken possession of the properties i.e., land & buildings, including the plant & machinery u/r.8(1) of the Security Interest (Enforcement) Rules, 2002 and whether the plant & machinery are to be treated as movables and so the Respondent Bank while taking possession of such plant & machinery has to follow separate procedure u/r.4 of the Rules, 2002 is an intriguing question to be decided in the main SA. Further, I have also perused the valuation reports as filed by the Respondent Bank. Admittedly, the said reports do not contain any valuation for the plant & machinery and further in the valuation report dt.20.12.2013 filed at page 46 of the material documents of the Respondent Bank it has been stated that 75% of the cost of structures are deducted towards depreciation and whereas at page 50 of the said report, the rental value of the property has been shown as Rs.10.00 lakhs per month. All these are intriguing questions, which have to be decided after a thorough inquiry in the main SA.

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By considering all the above said facts and circumstances, the quantum of claim involved in the matter, the Respondent Bank is hereby directed to defer all further proceedings, including the proposed auction sale of the schedule properties on 31.01.2014 in pursuance of the Auction Sale Notice dt.26.12.2013 until further orders of the Tribunal, subject to the condition that the applicant shall deposit 30% of the amount claimed by the Respondent Bank in its auction sale notice dt.26.12.2013, out of which 15% of the amount is directed to be deposited within 4 weeks from today and the balance 15% within 4 weeks thereafter. In the event the applicant fails to deposit the amounts as stated supra, the Respondent Bank shall be at liberty to proceed further in accordance with law, which action shall be subject to the result of the above SA. Matter stands posted to 05.03.2014 for report of compliance and inquiry in the main SA.”

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12. In Para No.1 of the order, the 2^nd respondent observed that while taking possession of plant and machinery, the 1^st respondent has to follow separate procedure under Rule 4 of the Rules framed under the SARFAESI Act, which is an intriguing question to be decided in the

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main SA. From this observation, it is evident that there is prima facie statutory violation which can be enquired into during enquiry. Thus, when there is a statutory violation, this Court can exercise its extraordinary power under Article 226 of Constitution of India though effective and efficacious remedy is available.

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13. In KANAIYALAL LALCHAND SACHDEV AND OTHERS Vs. STATE OF MAHARASHTRA AND OTHERS^[2] , the Apex Court in Para 23 held as follows:

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“In our opinion therefore, the High Court rightly dismissed the petition on the ground that an efficacious remedy was available to the appellants under Section 17 of the Act. It is well settled that ordinarily relief under Articles 226/227 of the Constitution of India is not available if an efficacious alternative remedy is available to any aggrieved person”.

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14. In another decision reported in UNITED BANK Of INDIA Vs

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SATYAWATI TANDON AND OTHERS^[3] the Apex Court held in

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Para Nos.42 to 45 as follows:

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“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 the 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.

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Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution of India, if an effective, remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of 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

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in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are a 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, the 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.

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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.

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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”.

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15. No doubt, in view of the principles laid down in the above judgments, when alternative effective efficacious statutory remedy is available, this Court cannot exercise its power under Article 226 of Constitution of India. But in view of the decision referred supra in Canara Bank’s case, when there is a statutory violation, this Court can exercise its power. Therefore, mere availability of alternative remedy is not a bar when there is a statutory violation even according to the observation of the 2^nd respondent in the impugned order. Therefore, we find that the writ petition is maintainable. Accordingly, point No.1 is answered in favour of the petitioner and against the respondents.

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Point No.2:

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16. The 2^nd respondent while making several observations about non-compliance of Rule 4 of the Rules framed under the SARFAESI Act and other mandatory provisions directed the petitioner to deposit 30% of the amount demanded by the 1^st respondent which is now challenged as it is arbitrary. No doubt when order is passed, ordinarily this Court cannot interfere with such an order.

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17. In a judgment reported in MARDIA CHEMICALS LIMITED AND OTHERS Vs. UNION OF INDIA AND OTHERS^[4] . The Full Bench of the Apex Court while dealing with Debt Laws on various aspects including the provisions of SARFAESI Act held as follows:

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“The amount of deposit of 75% of the demand, at the initial proceeding itself sounds unreasonable and oppressive, more particularly when the secured assets/the management thereof along with the right to transfer such interest has been taken over by the secured creditor or in some cases property is also sold. Requirement of deposit of such a heavy amount on the basis of a one-sided claim alone, cannot be said to be a reasonable condition at the first instance itself before start of adjudication of the dispute. Placed in a situation where it may not be possible for the borrower to raise any amount to make deposit, his secured assets having already been taken possession of or sold, such a rider to approach the Tribunal at the first instance of proceedings, captioned as appeal, renders the remedy illusory and nugatory. No doubt, in suits also it is permissible, in given facts and circumstances and under the provisions of the law to attach the property before a decree is passed or to appoint a receiver and to make a provision by way of interim measure in respect of the property in suit. But for obtaining such orders a case for the same is to be made out in accordance with the relevant provision under the law. There is no such provision under the Act.

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Merely giving power to the Tribunal to waive or reduce the amount, does not cure the inherent infirmity leaning one-sidedly in favour of the party, who, so far has alone been the party to decide the amount and the fact of default and classifying the dues as NPAs without participation/association of the borrower in the process. Such an onerous and oppressive condition should not be left operative in expectation of reasonable exercise of discretion by the authority concerned.

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The objections that in certain circumstances it would not be clear as to in what manner the provisions of the Act would be workable, are

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not such which render the statute invalid or unconstitutional. Such problems about working of any particular provision of the Act in any particular factual situation, may be considered as and when it may arise. Therefore, it is not necessary to go into those questions.

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Subject to what is provided in para 80, the validity of the Act and its provisions is upheld except that of Section 17(2) of the Act, which is declared ultra vires Article 14 of the Constitution”.

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18. In view of the principle laid down in the above judgment directing to deposit unreasonable amount at initial proceedings itself is oppressive, and it is nothing but denying right of the claimants at the threshold, more particularly, when there are secured assets already in possession of the same which proposed to be sold and that apart power is conferred on the 2^nd respondent to pass appropriate orders in a workable manner and not to render the statute invalid and unconstitutional but depending on the factual situation, the 2^nd respondent may pass appropriate orders.

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19. In the instant case on hand, the petitioner which is an industry carried on flourishing business, but due to strikes etc., during past 8 months the business was badly affected and thereby could not pay the amount due, however, possessed substantial property to recover the amount due. Therefore, taking into consideration the facts and circumstances of the case, we find that it is a fit case to direct the petitioner to deposit 20% of the amount claimed by the 1^st respondent. Accordingly, the order is modified.

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20. In the result, the writ petition is allowed in part, directing the petitioner to deposit 20% of the amount claimed by the 1^st respondent, within two months from the date of receipt of copy of this order. In the event of failure to comply the above direction, the 1^st respondent may proceed further, in accordance with law.

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JUSTICE ASHUTOSH MOHUNTA.

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JUSTICE M. SATYANARAYANA MURTHY.

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Date: 10-03-2014 ska

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