IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE : 18.11.2008 CORAM THE HONOURABLE MR. JUSTICE S.J.MUKHOPADHAYA AND THE HONOURABLE MR. JUSTICE V.DHANAPALAN W.P. NOS. 3958, 3959 & 5172 OF 2008 & 17009 OF 2007 AND C.R.P. (PD) NOS. 1519 & 3301 OF 2007 AND M.P. NOS. 1 OF 2007 & 2 OF 2008 W.P. No.3958 of 2008 1. Indian Bank Asset Recovery Management Branch rep. by its Authorised Officer & Chief Manager, S.Arulselvan 55, Ethiraj Salai, Chennai 600 008. 2. Indian Bank George Town Branch No.155, Thambu Chetty Street Chennai 600 001. .. Petitioners - Vs - 1. M/s.Hamosons Apparels Private Ltd. rep. by its Managing Partner Mr. Abdul Razaq Osman 51, Jawaharlal Nehru Salai Guindy, Chennai 600 097. 2. The Debts Recovery Appellate Tribunal No.55, Ethiraj Salai Chennai 600 008. .. Respondents W.P. No.3959 of 2008 1. Indian Bank Asset Recovery Management Branch rep. by its Authorised Officer & Chief Manager, S.Arulselvan 55, Ethiraj Salai, Chennai 600 008. 2. Indian Bank George Town Branch No.155, Thambu Chetty Street Chennai 600 001. .. Petitioners https://hcservices.ecourts.gov.in/hcservices/ - Vs - 1. Mrs. Shirin Iqbal 2. The Debts Recovery Appellate Tribunal No.55, Ethiraj Salai Chennai 600 008. 3. M/s.H.M.Hajee Moosa rep. by its Managing Partner Mr. Abdul Razaq Osman 51, Jawaharlal Nehru Salai Guindy, Chennai 600 097. 4. M/s.Hanif Bros. rep. by its Managing Partner Mr. Abdul Razaq Osman 51, Jawaharlal Nehru Salai Guindy, Chennai 600 097. 5. M/s.Hamosons Apparels Private Ltd. rep. by its Managing Partner Mr. Abdul Razaq Osman 51, Jawaharlal Nehru Salai Guindy, Chennai 600 097. 6. M/s.Hamosons rep. by its Managing Partner Mr. Abdul Razaq Osman 51, Jawaharlal Nehru Salai Guindy, Chennai 600 097. 7. Mrs. Munira Haroon .. Respondents W.P. No.5172 of 2008 M/s.Hamosons Apparels Private Ltd. rep. by its Managing Partner Mr. Abdul Razaq Osman 51, Jawaharlal Nehru Salai Guindy, Chennai 600 097. .. Petitioners - Vs - 1. Indian Bank Asset Recovery Management Branch rep. by its Authorised Officer & Chief Manager, S.Arulselvan 55, Ethiraj Salai, Chennai 600 008. 2. Indian Bank George Town Branch No.155, Thambu Chetty Street Chennai 600 001. .. Respondents https://hcservices.ecourts.gov.in/hcservices/ C.R.P. (PD) Nos.1591 & 3301 of 2007 Ms.S.Chitra .. Petitioner/Petitioner - Vs - Syndicate Bank Oopanakara Street Coimbatore 641 001 rep. by its Chief Manager .. Respondents/Respondents W.P. No.17009 of 2007 S.Chitra .. Petitioner - Vs - 1. Union of India through the Secretary Ministry of Finance New Delhi. 2. Syndicate Bank Oopanakara Street Coimbatore 641 001 rep. by its Chief Manager 3. The Debts Recovery Appellate Tribunal Chennai, rep. by its Chairperson. .. Respondents W.P. No.3958 of 2008 filed under Article 226 of the constitution of India for the issuance of a writ of certiorari to call for the records pertaining to the order dated 28.1.2008 passed in IN (SARFAESI) No.40 of 2008 in SA 20/07 on the file of the Debts Recovery Appellate Tribunal, Chennai and quash the same. W.P. No.3959 of 2008 filed for the issuance of a writ of certiorari to call for the records pertaining to the order dated 28.1.2008 passed in IN (SARFAESI) No.964 of 2007 in SA 20/07 on the file of the Debts Recovery Appellate Tribunal, Chennai and quash the same. W.P. No.5172 of 2008 filed for the issuance of a writ of certiorari to call for the records of the Debts Recovery Appellate Tribunal, Chennai, in I.A. No.112 of 2008 in IN-SARFAESINo.40 of 2008 dated 28.01.2008 and quash the same. W.P. No.17009 of 2007 filed for the issuance of a writ of declaration declaring that the provision of law under Section 18 (1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, as void, arbitrary, unconstitutional and ultra vires Article 14 of the Constitution of India, insofar as the petitioner is concerned. C.R.P. (PD) Nos.1591 of 2007 filed under Article 227 of the Constitution of India against the order dated 7th May, 2007, made in IN (SA) No.173 of 2007 on the file of the Debts Recovery Appellate Tribunal. https://hcservices.ecourts.gov.in/hcservices/ C.R.P. (PD) No.3301 of 2007 filed against the order dated 27th Sept., 2007, made in I.A. No.866 of 2007 in O.A. (S) No.42 of 2005 on the file of the Debts Recovery Tribunal, Coimbatore. For Petitioners: Mr.V.Ramachandran, SC, for Mr. Zaforullah Khan in WP No.5172/08 Mr. G.Masilamani, SC, for M/s.Aiyar & Dolia in WP 3958 & 3959/08 Mr. K.Ramalinga Gounder in WP 17009 & CRP (PD) 1591 & 3301/07 For Respondents: Mr.V.Ramachandran, SC, for Mr. Zaforullah Khan for RR-3 to 6 in WP.3959/08 Mr. G.Masilamani, SC, for M/s.Aiyar & Dolia in WP 5172/08 Mr. T.R.Rajagopalan, SC, for Dr.Anita Sumanth for R-1 in WP 3958 & 3959/08 Mr. P.Sreenivasalu in CRP (PD) 3301/07 & 15901/2007 Mr. P.Wilson, Asst. Solicitor General, for R-1 in WP 17009/07 COMMON ORDER S.J.MUKHOPADHAYA, J. Common question of law being involved, though the cases were heard separately, they are disposed of by this common judgment. 2. In both the cases, the borrowers, while raised question of Debts Recovery Appellate Tribunal's (hereinafter referred to as 'Appellate Tribunal') jurisdiction to pass conditional interim orders, they have also challenged the validity of Section 18 (1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act (hereinafter referred to as 'NPA Act'). 3. The borrower of the first set of cases, M/s.Hamosons Apparels Pvt. Ltd., filed a petition for condonation of delay along with an appeal u/s 18 of the NPA Act, wherein, by impugned orders dated 28th Jan., 2008, Appellate Tribunal passed conditional order on payment of Rs.2.5 Crores. The delay having condoned and interim order having passed, while bank preferred two writ petitions (W.P. Nos.3958 & 3959/08), against the conditional order of payment of Rs.2.5 Crores, M/s.Hamosons Apparels Pvt. Ltd., challenged the said order in W.P. No.5172/08. Another borrower, Ms.S.Chitra, of the 2nd set of cases, has also challenged the conditional interim order and dismissal of the appeal by filing revision petition, C.R.P. (PD) No.1519/07 and also challenged the validity of Section 18 (1) of NPA Act in W.P. No.17009/07. https://hcservices.ecourts.gov.in/hcservices/ In original application, Ms.S.Chitra also prayed for cross- examination of the bank manager and to send the documents for expert's opinion, but it having been negatived, she has preferred another revision petition, C.R.P. (PD) No.3301/07. Stand of borrower – M/s.Hamsosons Apparels Pvt. Ltd. (in 1st set of cases): 4. Mr.V.Ramachandran, learned senior counsel appearing for the borrower submitted that pursuant to judgment of Supreme Court in Mardia Chemicals - Vs – Union of India (2004 (4) SCC 311), the Parliament amended NPA Act, but what was sought to be corrected by Supreme Court by striking down Section 17 (2) as onerous found itself once again under 2nd proviso to Section 18 (1) of the said Act. U/s 13 (2), a secured creditor makes claim for recovery of money due and payable by borrower by putting him on notice and on failure the secured creditor invokes Section 13 (4) for taking further course of action of one or more options or measures to recover the secured debt. The borrower can react under the provision of Section 13 (3- A), which also imposes condition upon the secured creditor to reply to the objections that may be received from the borrower within a week, stating the reasons for non-acceptance of the objections raised by the borrower. The further course of action as detailed u/s 13 (4) could be taken by the secured creditor while not accepting the objections. Section 13 (13) imposes a restraint upon the borrower from transferring the secured asset by way of sale, lease or otherwise without prior consent of the secured creditor. This would mean that, immediately on communication of notice u/s 13 (2), the borrower is restrained from liquidating his asset, which the secured creditors have included in their notice, this notwithstanding the fact that the said asset may not have been offered as security. According to learned senior counsel, Section 17 provides first opportunity to the borrower, which, however, is limited only to the extent to decide whether measures referred u/s 13 (4) taken by secured creditor for enforcement of security interest is in accordance with the provisions of the Act and the rules made therein. None of the sections confer the borrower any right to move the Debts Recovery Tribunal (hereinafter referred to as 'Tribunal') to question the quantum of money claimed by the secured creditor. The correctness of action u/s 13 (4), if upheld by the Tribunal, a right of appeal is provided u/s 18. At that stage, the assets of the borrower stands frozen with the secured creditor, in view of Section 13 (13). In this background, demand for payment of 50% of the debt claimed by the secured creditor or liability determined by the Tribunal is an onerous condition. An analysis of such provision, which has been imposed by amendment after Mardia Chemicals case amounts to relocation of onerous condition that existed u/s 17 (2) prior to Mardia Chemicals case, without change of situation in any manner for the borrower. Even at the appellate stage, the plight of the borrower in no manner eases. Therefore, the condition imposed upon the borrower not pursuant to any determination of liability, but by an independent authority, if allowed to continue, ultra vires for https://hcservices.ecourts.gov.in/hcservices/ the same reason for which Section 17 (2) was so declared. Reliance was placed on Supreme Court decision in Seth Nand Lal – Vs – State of Haryana (1980 (Supp.) SCC 574), wherein the Supreme Court held as follows :- "....... that the right of appeal is a creature statute and there is no reason why our legislature, while granting the right cannot impose conditions for the exercise of such right so long as conditions are not so onerous as it amounts to unreasonable restrictions rendering the right almost illusionary." Supreme Court decision in Commissioner of Civil Supplies – Vs – V.Sethuraman (1974 TNLJ 511), was also relied, relevant portion of which reads as follows :- "When an authority which is entrusted with only power of execution cannot assume for itself a jurisdiction to resolve interior disputes by adjudication. Judicial power to decide civil disputes should not be confined with execution entrustment of recovery powers of a summary character as an expedient for equal recovery on grounds of State interest." 5. According to learned counsel for the borrower, the provision of Section 18 (1) imposing condition of pre-deposit for preferring appeal are onerous and economic blockade is created upon borrower denying him the right to prefer appeal. While Section 13 (13) imposes a restraint, 2nd and 3rd proviso to Section 18 (1) imposes a financial burden upon already overburdened borrower. The appeal provided u/s 18 is nothing but a mirage for the borrower and imposition of condition under 2nd and 3rd proviso to Section 18 (1) without being heard on merit on the quantum of amount claimed by the secured creditor could never have been intended by the Legislature as it would amount to denial of natural justice and ultra vires the Constitution, being arbitrary, rendering the legal remedy beyond the reach of the borrower. The Supreme Court embarked on a process to correct the unconstitutional or onerous condition, which were found u/s 17 (2), but the very same provisions have been inserted as 2nd and 3rd proviso to Section 18 (1) even where no determination of quantum is done by the Tribunal. According to learned counsel, the following condition set out in para-64 of Mardia Chemicals case are also applicable in the present case :- i) The action u/s 13 (4) of NPA Act is taken even while adjudication of the debt due is pending before the Debts Recovery Tribunal, which is the authority of the first instance; ii) There is no determination of the amount due by the DRT; iii) The secured assets are under the control of the secured creditor insofar as they have issued notice u/s 13 (2) and taken action under Section 13 (4) of https://hcservices.ecourts.gov.in/hcservices/ the Act in view of Section 13 (13); and iv) There is no special reason for double security in respect of an amount yet to be determined and settled. Stand of the Guarantor – Ms.Shirin Iqbal (in the 1st set of cases) : 6. Learned counsel for the guarantor, while referred to the fact that Indian Bank has already filed original application before the Tribunal for recovery of Rs.304.09 lakhs, informed that the Tribunal has not yet finalised the quantum. Therefore, there is no determination of debt due to the bank. According to him, the 2nd proviso to Section 18 (1), while imposes a restriction on right to appeal, it stipulates pre-deposit of quantum only by determination as to which one is lower of the two amounts, viz., the amount of debt claimed by the secured creditor or the amount of debt determined by the Debts Recovery Tribunal. Thus, the 2nd proviso could come into operation only if both the above details of amounts are available before the Appellate Tribunal and not otherwise. Where the original application is pending before the Tribunal for determination of debt amount, the 2nd proviso cannot be given effect to and no pre-deposit could be ordered by the Appellate Tribunal. In absence of determination of amount by Tribunal, the second operative figure in calculation would be "Zero" and, consequently, lower of the two amounts being "Zero", 50% thereof would be "Nil". Hence, the application of 2nd proviso would not arise in appeal where no determination of due is made by Tribunal. It is only if such interpretation of 2nd proviso to Section 18 (1) is accepted, i.e., the appeal to be entertained without any deposit, the question of reducing the deposit under 3rd proviso would not arise and the provision could be saved. Stand of secured creditor - Indian Bank (in the 1st set of cases) : 7. Mr. G.Masilamani, learned Advocate General appeared for the Bank. Referring to Section 18 (1) he submitted that any person aggrieved by any order of Tribunal is entitled to prefer appeal to Appellate Tribunal. Under 2nd proviso to Section 18 (1), no such appeal could be entertained unless the borrower deposits with the Appellate Tribunal 50% of the amount of debt due from the borrower as claimed by the secured creditor or as determined by Tribunal, whichever is less. The 3rd proviso provides that the Appellate Tribunal, may, in exercise of its discretion, for reasons recorded in writing, may reduce the amount to be so deposited to 25%. The expression "amount as determined by Debts Recovery Tribunal" found in 2nd proviso to Section 18 (1) requires, as a condition precedent for exercising power u/s 18 (1), if pre-determination of amount due is determined by the Tribunal. It was submitted that the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as 'DRT Act, 1993') is enacted prior to NPA Act, 2002 and both Acts operate https://hcservices.ecourts.gov.in/hcservices/ independently in different fields. NPA Act was enacted with the intent of facilitating recovery of dues to the secured creditor without the intervention of the court and Tribunal, which is similar to Section 16 (a) of the Transfer of Property Act. DRT Act, 1993, envisages adjudication and determination of claim made by the Bank or Financial Institution by the Tribunal as a pre-condition to initiate recovery proceeding. On the other hand, NPA Act presupposes determination of amount by the secured creditor itself prior to issuance of Section 13 (2) notice. Such determination is recognised for taking action against the borrower for recovery of the amount even without institution of the suit or recovery application by declaring the account of the borrower as Non-Performing Asset (NPA). All that is required is the procedure laid down under the NPA Act and the Rules framed therein should be adhered to. Stand of the borrower, Ms.S.Chitra (in the 2nd set of cases) : 8. This petitioner claims to be a third-party, neither the borrower nor the guarantor and further according to her she has not obtained any loan from Syndicate Bank. She was impleaded as defendant along with her father and sisters in O.A. No.278/04 preferred by Syndicate Bank. The ancestral property in which the petitioner, along with other defendants 2 to 8 are the co-owners was mortgaged without her knowledge. It was submitted that proviso to Section 18 (1) of NPA Act is bad and ultra vires. U/s 18 (1), "any order passed by Tribunal could be challenged, including an interim order by any person including a stranger to a loan transaction, even who is not a borrower or a guarantor". The law is silent as to purpose and manner of the word "as claimed by secured creditors or determined by the Debts Recovery Tribunal, whichever is less", so far as it relates to a third-party. Further, according to this petitioner, the 2nd proviso to Section 18 (1), even before determination of amount of debt by Tribunal as due from borrower, mandates any person including third-party to deposit 50% of the debt amount, which could be reduced to 25% by the Appellate Tribunal. Therefore, proviso to Section 18 (1) is more onerous than unamended Section 17 (2), which was struck down by the Supreme Court. The condition of pre-deposit is alleged to be bad rendering the remedy illusory for the following grounds :- (i) it is imposed while approaching the Appellate Tribunal even against an interim order ; (ii) there is no determination of amount due as yet ; iii) the possession of the secured asset or its management with transferable interest is taken over by the secured creditor and is in their control ; iv) there is no special reason for double security in respect of an amount yet to be determined and settled ; https://hcservices.ecourts.gov.in/hcservices/ v) 50% of the amount claimed is by no means would be a meagre amount ; vi) it will leave not only the borrower or guarantor, but also a total stranger in a position where it would not be possible for him/her to raise any funds to make the deposit of 50% of the unnamed or uncertain amount ; and vii) the borrower, including the guarantor and a stranger-third party are treated alike. Stand os secured creditor, M/s.Syndicate Bank (in 2nd set of cases) : 9. This bank has denied the fact that the petitioner S.Chitra is a third-party. According to the bank, the petitioner and her sisters, who were defendants 5, 6 and 8, through their father and power of attorney holder (4th defendant), by giving personal guarantee, have mortgaged their property in favour of the bank by depositing the title deeds and executing registered memorandum of deposit of title deeds in favour of the bank as security for due payment of credit facilities availed by M/s.Aandavar Electrical Distributors represented by partners, who are defendants 1 to 3. So far as validity of law is concerned, learned counsel for the bank took similar plea as taken by Indian Bank in the first set of cases. 10. We have heard the learned counsel for the parties and noticed their rival contentions. 11. The reasons for enactment of DRT Act, 1993 and NPA Act, 2002, fell for consideration before Supreme Court in Transcore – Vs – Union of India reported in 2008 (1) SCC 125 :: 2006 (5) CTC 753. In the said case, object of both the Acts were noticed and following observation was made :- "13. ............. The object of the DRT Act as well as 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 read with 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 in the way of https://hcservices.ecourts.gov.in/hcservices/ realization of debt under the DRT Act by the enactment of the Act, 2002." The Supreme Court further held in the case of Transcore that the bank or financial institution having elected remedy in terms with DRT Act, 1993, can also invoke the NPA Act, 2002, for realising the secured debt without withdrawing or abandoning the original application filed before the Tribunal under the DRT Act, 1993. Therefore, it will be clear that the secured creditor can recover the secured debt under NPA Act by invoking any one or more measures mentioned u/s 13 (4), independent of an application u/s 19 of the DRT Act, 1993. 12. There can be a case where, without filing an application u/s 19 of DRT Act, 1993, a secured creditor can take steps to recover his debt u/s 13 (4) of NPA Act. In such case, question of determination of amount u/s 19 of DRT Act, 1993, do not arise. There can be another situation where the secured creditor, though elected to opt for remedy u/s 19 of DRT Act, 1993, may also invoke Section 13 (4) of NPA Act, 2002. In such a case, the secured creditor is not supposed to wait for determination of the claim by the Tribunal u/s 19 of DRT Act, 1993, for the purpose of taking action u/s 13 (4), as otherwise the object of Section 13 (4) of NPA Act will be defeated. In a third situation, even after obtaining a decree and issuance of a recovery certificate u/s 19 of DRT Act, 1993, with regard to certain assets, it is also open for a secured creditor to take independent action u/s 13 (4) of NPA Act for recovery of certain dues due to the secured creditor. There can be a fourth situation in which the secured creditor may take recourse to recovery of amount only u/s 19 of DRT Act, 1993 without taking recourse u/s 13 (4) of NPA Act. From the aforesaid fact it will be evident that it is not necessary that in all such cases the borrower (including the guarantor) or any person who has preferred appeal u/s 18 of NPA Act or u/s 20 of DRT Act, 1993, there will be pre-determination of amount by the Tribunal. It will depend on the situation whether while taking action taken u/s 13 (4) of NPA Act any pre-determination has been made by Tribunal u/s 19 of the DRT Act, 1993. 13. Section 18 (1) contemplates presentation of appeal if any person, including the borrower is aggrieved against any order passed u/s 17 of NPA Act. However, entertaining the appeal and passing orders thereon, is subject to 2nd proviso to Section 18 (1), and exercising of power by Appellate Tribunal under 3rd proviso to Section 18 (1). https://hcservices.ecourts.gov.in/hcservices/ It cannot be presupposed that Section 18 appeal will only be against a final order that may be passed u/s 17 of NPA Act. Even against an interim order or non-grant of an interim order, any person, including the borrower may prefer appeal u/s 18. In such a case, a person, including the borrower do not allow the Tribunal to make any determination of the claim or counter-claim or the legality of the action taken u/s 13 (4) and before that the person moves in appeal u/s 18. Therefore, it cannot be presumed that in all such cases, pre-determination of the by Tribunal is mandatory. 14. Section 13 is a pivotal section in NPA Act, which stipulates that in default in repayment of secured debt and account in respect of such debt is classified as NPA, further action could be taken u/s 13 (4). The term "debt" defined u/s 13 of NPA Act and DRT Act, 1993, includes "money due under a decree". Therefore, even this category of money due in terms of debt or a decree could