IN THE HIGH COURT OF JUDICATURE AT PATNA CWJC No.3169 of 2007 SHYAM KISHORE PRASAD & ANR Versus BANK OF BARODA & ORS ----------- For the Petitioner : M/s S.D.Sanjay,Sushila Agrawal and Gautam Kejriwal For respondent nos. 1 to 3 : Mr. Vivek Prasad For respondent no.4 : Mr. Arbind Kumar Jha For BICICO : Mr. Nirmal Kumar --- 3 5.09.2008 The petitioners are the husband and the wife. They were Directors of a Public Company Limited- respondent no.4, which has other Directors as well. The Managing Director of the said Company is Sri Parmeshwar Prasad, through whom the Company has been sued in the present proceeding. Company has appeared in the matter. The grievances of the petitioners are as against the proceedings taken under Section 13 of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (hereinafter referred to as “SRFAESI ACT’) by the respondent nos. 1,2 and 3 being Bank of Baroda and its officers. Many contentions were raised but I will deal with only one which is necessary for the purpose of disposal of this case. Bank of Baroda has appeared. Heard the parties and with their consent this writ application is being disposed of at the stage of admission itself. When the Company was incorporated, the petitioner and the said Parmeshwar Prasad were Directors. The Company 2 sought financial accommodation in the shape of inter alia cash credit facility from Bank of Baroda . For securing the same, the petitioners gave personal guarantee and mortgaged some of their properties by submission of title deed. Sri Parmeshwar Prasad also along with his wife gave guarantee and mortgaged their property. The movable and immovable property of the Company, which was substantial, was also charged. Here I may notice that prior to the said financial accommodation being given by the respondent- Bank of Baroda, the Company had taken financial assistance from the Bihar State Credit and Investment Corporation Limited . The said Corporation is the statutory Corporation constituted under the State Finance Corporation Act, 1951. The Corporation for the financial assistance given to the Company, had created first charge on the assets of the Company. Thus the charge of the Bank on the assets of the Company was initially second charge, second to the charge of BICICO. It appears, as time went the dues of the Company swelled. Amongst the Directors ,there was a re-arrangement whereby the petitioners opted out the Company in furtherance to the agreement as between the Directors but the guarantee and the mortgage continued. Subsequently, the petitioners gave notice to the Bank in terms of clause (1) of the letter of guarantee, with- drawing their guarantee on 19.11.2003. Bank in its turn required the existing Director to either get the guarantee renewed or substitute it with valid surety, which on not being done, they had no option but to 3 move Debts Recovery Tribunal, Bihar, Patna for recovery of the due of the Bank. In those proceedings , the Company and the Director i.e. original Director and the present Director were made parties. Apparently, finding that the proceedings were likely to drag on, Bank decided to resort to the provision of the SRFAESI ACT. It accordingly issued notice to all the parties in terms of Section 13(2) of the said Act. Replies were filed in terms of Section 13 (3A). These notices were responded to by the petitioners and others and replied on behalf of the Bank by its lawyer. Bank not being satisfied with the reply, took up the proceedings in terms of Section 13(4) of the Act. At this stage, petitioners took an objection. They submitted that Bank has not chosen to move against the property of the Company nor has chosen to move against all the mortgaged property of the present working Director but has malafide chosen to proceed only against all property mortgaged by the petitioners who had long since retired as Directors of the Company. The Bank not willing to drop the petitioners, this Writ application was filed.. The contentions of the petitioners are,(i) in terms of clause (i) of the guarantee agreement, the petitioners having acted and noticed the Bank, the petitioners were relieved of their guarantee and as such Bank could not proceed against them, (ii) Bank having permitted violation of agreement and deviation from agreement to the Company under which financial accommodation was granted in the shape of restricting transaction only to the said Bank account and permitted the company to operate through other 4 Bank, which resulted in prejudice to the petitioners relieved them of their obligation as surety and thus Bank could not proceed against them,(iii) there were assets, which were readily available to other working Director, mortgaged to the Bank but for malafide reason Bank has chosen not to move against them but move against the petitioners, who had nothing to do with the business having resigned from the Directorship over ten years back to the knowledge of the Bank and lastly, the Bank has chosen to move against the private property of ex Director leaving property of existing Director and more important is the property of the Company itself of which Bank holds first charge being left out relieves the petitioners. This last issue, I may point out is significant. As noticed above, Bank has second charge ,the first charge being of BICICO in respect of property of the Company. After the petitioners opted out, the Company, the other Director cleared of the other dues of the BICICO, as a consequence BICICO gave “ No Due Certificate “.That being so, the charge of BICICO stood extinguished. Thus, Bank became the first charge holder of the assets of the Company but that was not proceeded against. In response to this, it is submitted by the Bank that it is the choice of the Bank , against which property it choses to move. In other words, what is submitted that it is the sweet will of the Bank to pick and choose the property it wants to be sold for satisfaction of its due. Here I may point out that the right to choose is 5 undeniable. That is recognized by SRFAESI ACT itself but the action of choosing is not dependent on the sweet will of the Bank, for Bank functioning to finance and acting in public law domain is bound by Article 14 of the Constitution in every aspects of its decision making power which affects the rights of third party. This decision making power in conformity with Article 14 does not deter from the right of the Bank to take a decision in the matter of which property to sell or not. So long as the decision is in conformity with the principle enshrined under Article 14 of the Constitution i.e. Bank must show that while taking a decision it acted bonafide, fairly and non in arbitrary, non discriminatory manner. If it is shown that Bank is preferring one debtor to another or proceeding against a debtor leaving other debtor or is otherwise conducting itself without reason or rational then surely the exercise of power would be arbitrary. In other words, though the Bank has discretion in chosing the property or the person from amongst many available to it for the purposes of satisfying its debts, sureity the discretion is neither absolute nor unfettered nor unguided or unbriddled. The discretion must be exercised based on sound principles and in transparent manner giving no party a cause to complain. To illustrate why it is so we must remember that now, unlike in the past, Banks and financial institutions with the aid of DRT,Securitization Ac t, PDR Acts,SFC Act have summary powers to expeditiously recover its dues. These are not available to ordinary citizens or others. Thus Bank can realize its dues against any of its 6 creditors, sureties and/or guarantors expeditiously without taking much time. Those persons then are treated by law to be creditors to that extent of the principle debtor. The must now move the ordinary civil Courts for realization of their dues which may take several years if not decades to fructify by which time he may be completely ruined in all respects. Thus, the responsibility on Banks and financial institutions to exercise discretion properly. Secondly if the discretion is taken to be unfettered then what will happen if the Bank choses to ignore a solvent debtor with ready cash and goes after a guarantors only residential house. Surely such action can be questioned on grounds of violation of Article 14 of the Constitution. Thus merely because the liability of the debtors, sureties, guarantors are co extensive, they being jointly and severably liable does not mean that the actions of the Banks in exercising its discretion in the matter is unquestionable. All exercise of discretionary power has to be tested and must satisfy the test of Article 14 of the Constitution in regards fairness, reasonableness, non arbitrariness and non discriminatoryness of actions. In the present case, Bank’s stand is that it chose not to move against the property of the Company as it was a second charge holder. That situation is not correct and has changed. Bank has become the first charge holder and under SRFAESI ACT in 7 given manner it can enforce the charge. Thus, leaving assets and removing from consideration, the charged assets of the Company even though it is the first charge holder when the liability is of the Company, vitiates the decision in regards to action under Section 13(4) of the Act. Further no cogent reason except a bald statement is being given for leaving other mortgaged properties of the existing Director. The stand is that the Bank considering the liquidity issue has decided in a particular manner. This is too vague, general and uncertain and cannot stand. On these facts alone, the exercise of Bank in terms of Section 13(4) cannot be held to be consistent with the principle enshrined under Article 14 of the Constitution. The actions are thus set aside. This does not , however, absolve the surety /guarantor/mortgagor from their liability. Bank would be at liberty to issue fresh notices in terms of Section 13(1) of the Act to all such persons and on response being received, after bonafide consideration of the respective stands taken , will dispose them of in terms of Section 13(3A) of the Act and thereafter proceed in accordance with law. This order may not be taken by the Bank or any of the party to be adjudicating upon the right and liability of any or either party. Bank is free to proceed afresh in accordance with law in the matter. Thus, notices issued to the petitioners in terms of Section 13(4) of the Act are hereby quashed with liberty to Bank, as 8 aforesaid to re-initiate the proceeding against all persons concerned in terms of Section 13(1) read with Section 13(11) of the Act. With the aforesaid observation and direction, this writ petition stands allowed. SINGH (Navaniti Prasad Singh , J.)