AJN 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.3566 OF 2007 UCO BANK, Churchgate branch through Mr. K. Venkatachalam, Industry House, 199, Churchgate Reclamation, Mumbai – 400 020. ) ) ) ) ... Petitioner Versus 1 M/s. Kanji Manji Kothari & Co., a Partnership Firm, carrying on Business at 49, Masjid Bunder Road, Mumbai – 400 003. ) ) ) ) ... Respondent 2 Mr. Devendra K. Thakkar 3 Mr. Indrajit K. Thakkar 4 Mr. Laxmidas K. Thakkar 5 Mr. Rameshchandra K. Thakkar 6 Mrs. Surmaben K. Thakkar 7 Mr. Jatin N. Thakkar All partners of Respondent No.1 firm carrying on business at 49, Masjid Bunder Road, Mumbai – 400 003. ) ) ) ) ) ... Respondents Mr. Vishal Khanavkar with Mr. Kedar Dighe for the petitioner. Mr. K.R. Bulchandani with Mr. K.K. Shroff i/b. Akshar Laws for the respondents. CORAM : SMT. RANJANA DESAI & SMT. ROSHAN DALVI, JJ. DATE ON WHICH THE JUDGMENT AJN 2 RESERVED : 19TH DECEMBER, 2007. DATE ON WHICH THE JUDGMENT PRONOUNCED : 12TH FEBRUARY, 2008. JUDGMENT : (Per Smt. Ranjana Desai, J.) 1. The petitioner is a body corporate incorporated under the provisions of the Banking Companies Act, 1949, having its head office at 10, BTM, Sarani, Kolkata, and branch offices all over India, including one at Churchgate. 2. Respondent 1 is a partnership firm constituted under the provisions of the Indian Partnership Act and, the rest of the respondents are its partners. 3. The respondents have availed various loan facilities from the petitioner's various branches as per the details given in paragraph 3 of the petition. For securing the said loans, the respondents had mortgaged their two flats situate at Malbar Hill, Mumbai (for convenience, “the secured assets”). 4. It is the case of the petitioner that the loan account of the AJN 3 petitioner became irregular despite the efforts of the petitioner to regularise it and, hence, the petitioner declared the account of the respondents as Non Performing Asset (for convenience, “NPA”) on 31/3/2005. 5. According to the petitioner, on the date of declaring the account of the respondents as NPA, the outstanding amount payable by the respondents to the petitioner was Rs.1,59,79,460/- with further interest at contractual rate w.e.f. 1/4/2005 with Churchgate Branch and Rs.38,44,738.91 with further interest at contractual rate w.e.f. 1/1/2005 with Queens Road Branch of the petitioner. 6. After declaring the account of the respondents as NPA as on 31/3/2005 for the sake of recovering the outstanding amount, the Bank initiated proceedings under the Securitization and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (for convenience, “the NPA Act”). Churchgate Branch of the petitioner issued notice dated 7/4/2005 and the Queens Road Branch issued notice dated 11/6/2005 to the respondents under section 13(2) of the NPA Act and demanded AJN 4 the payment of the outstanding amount and warned the respondents that if they failed to repay the loan, they would proceed further under the provisions of section 13(4) of the NPA Act. 7. The respondents replied to the said notices and the petitioner duly rejoined to the same under the provisions of section 13(3)(A) of the NPA Act. 8. According to the petitioner, despite notice, the respondents failed to repay the amount within a period of 60 days as provided under section 13(2) of the NPA Act. The petitioner, therefore, initiated proceedings under section 13(4) of the NPA Act. The petitioner took symbolic possession of the secured assets by pasting notice on the door of the secured asset, by giving notice to the borrower in person on 15/7/2005. The learned Chief Metropolitan Magistrate offered assistance to the petitioner to take physical possession of the secured assets. The petitioner took physical possession of the secured assets on 13/3/2006. The petitioner invited offers from public at large for holding auction for selling the secured assets. AJN 5 9. The respondent then filed an application under section 17 of the NPA Act, inter alia, praying that notice dated 7/4/2005 and notice dated 11/6/2005 be quashed and set aside; that the petitioner be restrained from selling, disposing of, alienating, transferring and creating any third party rights in the secured assets and that the respondents be permitted to bring the prospective purchasers in respect of the secured assets and be allowed to sell the said flats at market rate to the prospective purchasers and the sale proceeds be deposited with the respondents and for that, the petitioner be ordered and directed to cooperate with the respondents. 10. The petitioner opposed the application on various grounds. The petitioner raised a preliminary contention that the application filed by the respondents was time barred taking into consideration the fact that it had been filed almost nine months after the petitioner initiated action under section 13(4) of the NPA Act by taking symbolic possession of the secured asset on 15/7/2005. By order dated 8/5/2006, the Debt Recovery Tribunal (for short, “the DRT”) rejected the application. The DRT held that validity of notice AJN 6 under section 13(2) has not been challenged. The only submission of the respondents is that there are good purchasers for the secured assets. The DRT held that the symbolic possession was taken on 15/7/2005. The respondents should have filed the application within 45 days from 15/7/2005. The respondents have not done so. The application was, therefore, barred by limitation. The DRT dismissed the application. 11. The respondents carried an appeal to the Debts Recovery Appellate Tribunal (for short, “the DRAT”). The DRAT held that the possession contemplated under section 13(4)(a) of the NPA Act cannot be other than actual possession. Under section 17, a borrower may be aggrieved by any of the measures taken under section 13(4) of the NPA Act. The borrower may not be aggrieved by the issuance of a notice under section 13(2) of the NPA Act, but he may be aggrieved by the taking of physical possession as in that case, he is dispossessed from his property. The DRAT further observed that an effective action can be taken by a secured creditor only after actual possession is taken. Hence, a borrower has a right to file appeal under section 17 of the NPA Act within 45 days from the date of taking physical possession. The appeal was AJN 7 thus allowed. The DRAT remanded the matter to DRT for disposal in accordance with law. Being aggrieved by this judgment and order, the petitioner-bank has filed this writ petition. 12. Mr. Khanavkar, learned counsel appearing for the petitioner- bank assailed the impugned order on various grounds. He submitted that the DRAT has grossly erred in holding that the borrower has a right to file an appeal within 45 days after actual possession is taken. 13. Mr. Khanavkar submitted that as per the scheme of the NPA Act, section 13(2) notice amounts to attachment. Section 13(13) provides that after receipt of the notice under section 13(2), the borrower should not transfer the property to any third person without the permission of the bank. The submission of the respondents that the notice under section 13(2) and the notice under rule 8(1) of the Security Interest (Enforcement) Rules, 2002 (for short, “the said Rules”) by which symbolic possession of the secured assets is taken, is one and the same and hence, nothing new happens between section 13(2) and section 8(1), is not what is contemplated under the NPA Act. AJN 8 14. Mr. Khanavkar further submitted that chapter III of the NPA Act deals with 'Enforcement of Security Interest'. As per section 2 (1)(zf), 'security interest' is defined as right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31. From the title of Chapter III (Enforcement of Security Interest) and the wordings in section 13, it is clear that the bank can enforce its security interest i.e. the bank can enforce its right, title and interest over the secured assets by following any of the measures provided in section 13(4). In the present case, the bank has taken recourse to section 13(4)(a) by taking de jure possession of the secured assets. Once the security interest is enforced by taking de jure possession under section 13(4)(a) read with rule 8(1) all the rights and interests of the borrower including the borrower's title in the secured assets ceases to exist and the same vests in the bank. Legislature has consciously used the word 'possession' instead of the word 'attachment' in rule 8(1) which fortifies the petitioner's submission that if notice under section 13(2) amounts to 'attachment', the action under section 13(4)(a) read with rule 8(1) AJN 9 amounts to taking possession. 15. Mr. Khanavkar further submitted that since the title, interest and all the rights including the right to be in possession of the borrower cease to exist, the possession of the borrower over the secured assets becomes unwarranted by law and the same is not even protected by law. This is the reason why, on making a request to the learned Chief Metropolitan Magistrate/District Magistrate, the bank gets physical (de facto) possession of the secured assets as a matter of right. This is further justified by the fact that under the proceedings under section 14 of the NPA Act, there is no adjudication provided and it is mandated that the learned Chief Metropolitan Magistrate/District Magistrate should assist the bank in taking forcible possession of the property as a matter of right by passing an administrative order. Therefore, at the most, the only right existing with the borrower after the bank takes de jure possession is the right not to be dispossessed forcibly from the secured assets without following due process of law. And the said due process of law is followed by the bank by taking the assistance of the learned Chief Metropolitan Magistrate/District Magistrate under section 14. AJN 10 16. Mr. Khanavkar reiterated that since after taking de jure possession of the property, the borrower has no right in the secured asset, there can be no infringement of the borrower's right on bank taking physical (de facto) possession of the secured asset. He submitted that it is a well settled principle of law that unless there is infringement of right, there can be no cause of action and since there is no cause of action, there can be no remedy in law. Thus, if there is no remedy in law, there can be no renewal of period of limitation. Therefore, the period of limitation as contemplated in section 17 of the NPA Act commences from the date bank takes de jure (symbolic) possession of the secured assets. 17. Mr. Khanavkar further submitted that sub-section (2) of section 17 states that the DRT has to consider whether the measures referred to in section 13(4) taken by the secured creditor are in accordance with the provisions of the NPA Act and the said Rules. The same indicates that all that the DRT can consider is whether the action under section 13(4) is proper or not. Further, in sub-section (3), it is provided that in case the DRT comes to the AJN 11 conclusion that the measures taken by the bank under section 13 (4) are not proper, the DRT can order restoration of possession of the secured assets to the borrower. In short, the DRT cannot go beyond anything but monitoring the actions of the bank under section 13(4). There is no provision in the entire NPA Act which authorizes the DRT to see if any actions of the bank subsequent to its actions under section 13(4) are proper or not. The justification for the legislature not providing for a check on the actions of sale, auction, etc. is that after taking de jure possession of the secured assets, even the title in the property vests in the bank. If the right and title of the borrower in the property ends, the borrower loses locus to challenge the action of the bank after these right and title are taken away. Even under section 19 of the NPA Act, the DRT can order the bank to pay costs, charges, etc. to the borrower in case possession of the secured assets is not taken properly by the bank. Even here the legislature has not provided for costs, charges, etc. for actions other than for taking possession of the property, fortifying the petitioner's case that after the bank takes over the right, title and interest in the secured assets, the borrower loses locus to challenge any further action of the bank. AJN 12 18. Mr. Khanavkar further submitted that the provisions of the Limitation Act, 1963 are not applicable to any local or special statutes if the special statute expressly bars the application thereof. Section 35 of the NPA Act expressly bars the application of any Act that is in force for the time being and the same beyond doubt includes the Limitation Act. He submitted that while following (2001) 8 SCC 470, the Supreme Court has in Fairgrowth Investments Ltd. v. Custodian, (2004) 11 SCC 472 held that 'exclusion' includes 'exclusion by necessary implication'. The Supreme Court has held in the said case that since section 13 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 provides that the provisions of that Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force ...' and, hence, the provisions of the Limitation Act would have no application though the said special statute provides for a period of limitation other than what has been provided for in the schedule to the Limitation Act. Mr. Khanavkar submitted that since section 35 is similar to section 13 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 on the same AJN 13 reasoning, the provisions of the Limitation Act are not applicable to the NPA Act. He submitted that in Prakash Jain v. Marie Fernandes, (2003) 8 SCC 431, the Supreme Court has after discussing the provisions of section 29(2) of the Limitation Act held that there is no inherent power in the court/tribunal to condone delay in filing proceedings if the same is not expressly provided for in the special statute itself. In this connection, learned counsel also relied on Sakuru v. Tanaji, (1985) 3 SCC 590. Mr. Khanavkar contended that the entire scheme of the NPA Act and the intention of the legislature show that the legislature has expressly barred application of the provisions of the Limitation Act. Mr. Khanavkar urged that in the circumstances, the view taken by the DRAT deserves to be set aside. 19. Mr. Bulchandani, learned counsel for the respondent submitted that the view taken by the DRAT is unassailable but the point from which limitation starts running needs to be further extended. He submitted that possession under section 13(4)(a) read with sections 13(6), (8), 17(1) and rules 8(1), (3), (6) and rule 9(9) comprehends both 'symbolic' and 'actual' possession of the AJN 14 secured asset and therefore, a debtor has a right to file an application before DRT under section 17(1) within 45 days of the secured creditor taking steps for symbolic possession or within 45 days of a secured creditor taking steps for actual possession of secured asset but before confirmation of sale. 20. He submitted that the manner in which measures can be “taken for possession” under section 13(4)(a), are elucidated in rules 8 and 9 of the said Rules which are framed under section 13 of the NPA Act. Section 17 of the NPA Act provides for an appeal/application from “any measures” under section 13(4). One of the measures that can be taken is “for taking possession”. Mr. Bulchandani contended that in section 13(4)(a) the legislature has used the words “including the right” with a purpose. The words “including the right” appearing in clause (a) of section 13(4) comprehend both symbolic and/or physical possession in stages as is elucidated in rules 8 and 9. The measure contemplated under section 13(4)(a) has sub-measures inbuilt in the same in view of rule 8(1), rule 8(3) and rule 8(5). In fact, rule 8(3) specifically talks about taking of “actual” possession while rule 8(1) only talks about possession. While interpreting provision of any AJN 15 law, every word has a connotation and significance. The words “including the right” in sub-clause (a) would not have been necessary if the legislature would have contemplated only one stage in section 13(4)(a). Mr. Bulchandani submitted that the manner in which secured asset is to be dealt with is provided under rules 8 and 9 of the said Rules. These rules envisage different stages/steps to be followed; first symbolic possession [rules 8(1) and (2)], then physical/actual possession [rules 8(3) and (4)] and then proceeding to sell the secured asset [rules 8(5) and (6) read with rule 9(9)]. These steps/stages are in aid of taking the measures for possession and selling the property. Rule 9(9) therefore provides that the authorized officer shall deliver the property to the purchaser free from encumbrances. Compliance of these Rules is open to scrutiny by DRT under section 17(2) and in the event the measures taken by secured creditors are not in accordance with the provisions of the NPA Act and the said Rules, the borrower is entitled to restoration of possession of the secured asset under section 17(3). Therefore, rules 8(1) and (2), then rules 8(3) and (4) and then rules 8(5) and (6) contemplate accrual of cause of action at each stage. AJN 16 21. Mr. Bulchandani submitted that if the case of the petitioners is to be accepted that the rights of borrowers extinguish on expiry of 45 days of date of possession notice issued under rule 8(1), then breaches of subsequent rules 8(3) to (6) will not be open to any challenge/scrutiny. Mr. Bulchandani submitted that if the submission of the petitioner is to be accepted, then there will be no case before DRT for consideration whether the procedure under rules 8(3) to (6) has been complied with by the secured creditor, since according to the petitioners rights of borrower is completely extinguished and, therefore, none can question any illegality committed by the secured creditor. This would dilute provisions of sections 17(2) and (3), besides causing grave and irreparable harm, injury and injustice to the borrower. 22. Mr. Bulchandani laid stress on sections 13(6), 13(8), rule 8 (1), (3) to (6) and contended that there is sufficient indication in these provisions that the borrower can pay the debt and redeem the secured asset. He submitted that the liability to pay crystalizes but the extent of liability is always subject to the scrutiny of DRT. When the extent of liability is disputed or when non-compliances of the provisions of the NPA Act or the said Rules is alleged by the AJN 17 borrower, it is DRT which is the forum for the borrower to approach and this in the cause of justice, equity and fair deal to the borrower has to be at any stage before the sale of the asset. Thus, it stands to logic and rationality that the borrower has a right to approach DRT either after the symbolic possession is taken after service of possession notice under section 13(4)(a) read with rules 8(1) and (2), or after actual possession is taken under section 13(4)(a) read with section 14 and rules 8(3), (4) or after sale notice is received by the borrower under rule 8(6), all read with section 17(1), but before completion of sale. 23. Drawing our attention to relevant portion of the Supreme Court's judgments in Mardia Chemicals (supra) and Transcore's case (supra), Mr. Bulchandani submitted that the borrower has no remedy available, not even a right to be heard on receipt of notice under section 13(2), not even a right to challenge the declaration of his account as NPA, neither on the claim nor on quantum of claim raised by the secured creditor at that stage. Only after “taking of possession” by the secured creditor, rights accrue to the borrower to file application challenging at that stage, declaration of his AJN 18 account as NPA and the claim of secured creditor including the quantum of claim. Section 17 therefore cannot render the borrower remediless, in the event, borrower chooses not to file an application after receipt of possession notice under section 13(4)(a) read with rule 8(1). Remedy will also be available to the borrower, if the borrower is aggrieved by the takeover of actual possession after symbolic possession or by notice of sale. All these stages therefore give rise to a separate cause of action which would be subject to the limitation period of 45 days commencing from each stage. 24. So far as application of Limitation Act is concerned, Mr. Bulchandani contended that section 37 of the NPA Act provides that application of other laws shall not be barred and that the provisions of the NPA Act or the said Rules shall be in addition and not in derogation of any other law for the time being in force. Section 36 of the NPA Act makes the provisions of the Limitation Act, 1963 applicable to secured creditors. 25. Section 17(7) of the NPA Act provides that DRT shall dispose of application in accordance with the provisions of the Recovery of AJN 19 Debts Due to Banks and Financial Institutions Act, 1993 (for short, “the DRT Act”) and the Rules made thereunder. The DRT Act under section 24 makes the provisions of Limitation Act, 1963 applicable to DRT. Therefore, provisions of Limitation Act, 1963 are applicable both to secured creditors and borrowers to avoid discrimination. 26. He submitted that the Supreme Court has in Transcore's case (supra) held that provisions of NPA Act and DRT Act and remedies thereunder are complementary to each other. The provisions of DRT Act therefore in the light of the said judgment in Transcore's case (supra) read with provisions of section 17(7) of the NPA Act shall mutatis mutandis apply to the NPA Act. The Limitation Act, 1963 will, therefore, apply to the NPA Act also. 27. Mr. Bulchandani submitted that as sections 4 to 24 become applicable by virtue of section 29, under section 5 of the Limitation Act, application before DRT can be admitted after the prescribed period if the applicant satisfies the court that he had sufficient cause for not preferring the application within such period. The AJN 20 delay if any, in preferring an application after 45 days can be therefore always condoned by DRT under the provisions of Limitation Act, 1963. 28. Mr. Bulchandani relied on Mangu Ram v. Delhi Municipality, AIR 1976 SC 105 and Union of India v. M/s. Popular Construction Co., AIR 2001 SC 4010 and contended that the provisions of Limitation Act, 1963 stand excluded only when there is an express bar to application of the Limitation Act, 1963 in special statute under consideration. 29. Mr. Bulchandani submitted that the judgments on which reliance is placed by the petitioner have no applicability, as in the special laws dealt with in the said cases, there was no concurrent provision as is provided in section 37 and section 17(7) of the NPA Act. As the provisions of DRT Act have been made applicable expressly to the NPA Act and in view of section 24 of the DRT Act, the Limitation Act, 1963 does apply to the NPA Act. Delay in preferring an application, therefore, can be always condoned by DRT provided cause is shown for delay to the satisfaction of DRT. AJN 21 30. Mr. Bulchandani urged that in the circumstances, there is no substance in the contentions raised by the petitioner and, hence, the petition be dismissed. 31. Two important questions fall for considerations of this court. They are : (a) From which point does the period of limitation of 45 days prescribed in