IN THE HIGH COURT OF JUDICATURE OF ANDHRA PRDESH:: HYDERABAD THURSDAY, THE FIFTTH DAY OF AUGUST TWO THOUSANDAND ELEVEN PRESENT:: HON’BLE SRI JUSTICE G.V.SEETHAPATHY C.R.P.No.2211 OF 2010 Between: M/s A.N.Steels Rep. by its Managing Partner, Moduvalasa, Denkada Mandal, Vizianagaram District and three others …Petitioners A n d Union Bank of India, Rep. by its Branch Manager, Sector-4, Visakhapatnam and another …Respondents HON’BLE SRI JUSTICE G.V.SEETHAPATHY C.R.P.No.2211 OF 2010 ORDER: This civil revision petition is directed against the order dated 30-04-2010 in S.A.No.169 of 2009, on the file of the Debts Recovery Tribunal, Visakhapatnam, wherein the said application filed by the petitioners herein for setting aside the notices dated 24.10.2009 and 06.08.2009 issued under Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the Act’), was dismissed. 2. Heard the learned counsel for the petitioners and the learned counsel for respondents-bank. Perused the record. 3. The case of the petitioners is that they obtained loan from the first respondent/bank to an extent of Rs.4,42,20,000/- under various counts. The petitioners needed additional Rs.2 crores and the bank promised to sanction the same and believing the promise, the petitioners completed their work by October, 2009 and the bank went back on their promise landing the petitioners in financial trouble. On the advise of the bank, the petitioners submitted a letter dated 04.03.2009 to re-structure the loan. The respondent/bank re-structured the loan for Rs.50 lakhs instead of Rs.150 lakhs and released only Rs.25 lakhs instead of Rs.50 lakhs. As a result, the petitioners could not run the unit. On 06.08.2009, the respondent/ bank issued notice under Section 13(2) of the Act demanding repayment of Rs.5,41,25,247-33 Ps for which the petitioners gave a detailed reply on 05.10.2009 seeking sometime to pool up the money to run the unit. Without giving reply, the respondent/bank issued notice under Section 13(2) of the Act for taking possession of the properties. The respondent has, thus, overruled the spirit of Section 13(2) of the Act and sought to use the same as a tool to coerce the petitioners to realize the amount. 4. The respondent filed a counter before the Tribunal contending that the petitioners did not stick to their promise made in their letter dated 05.10.2009 regarding payment of Rs.5 lakhs and as such the respondents did not give any reply. The notices were issued to petitioners in accordance with law. The application is filed only to evade the payment. The respondents are entitled to proceed against the mortgage properties in accordance with law. 5. After due enquiry, the learned Presiding Officer of the Debts Recovery Tribunal dismissed the application. Aggrieved by the same, the present revision is filed. 6. The learned counsel for the petitioners would mainly contend that to the notice Ex.P-5 issued by the petitioners, the respondent/ bank has not issued any reply and thus violated the provisions of Section 13(3A) of the Act and issued the notice under Section 13(4) of the Act which unsustainable. 7. The learned counsel for the petitioners would further contend that the bank declared the petitioners’ account as Non-Performing Asset (NPA) in accordance with the norms prescribed by the Reserve Bank. The learned counsel for the respondent/bank, on the other hand, would contend that when once interest is not paid for 90 days, the account becomes NPA as per the prescribed norms and the same was also intimated to the petitioners by way a notice dated 21.07.2009 and no objections were raised by the petitioners regarding the same. He would further contend that Ex.A-5 addressed by the petitioners is not a reply to Section 13(2) notice and no reference is made therein to Section 13(2) of the Act. 8. It is not disputed that the petitioners were sanctioned cash credit facility of Rs.126.45 lakhs and term loan of Rs.315.75 lakhs by the respondent/bank. It is also not disputed that on the request of the petitioners, the account was re-structured on 21.03.2009 by sanctioning and renewing the loans/credit facilities as follows: i. Cash credit facility of Rs.126.50 lakhs. ii. Working capital term loan of Rs.50 lakhs iii. Term loan-1 revived at Rs.302.60 lakhs iv. Funded interest term loan of Rs.72.55 lakhs. 9. It is also not disputed that as per the terms and conditions, the working capital term loan is repayable in 36 monthly installments commencing from July, 2009 and interest thereon is to be serviced as and when charged. It is also not disputed that the cash credit account was to be operated as per the bank norms and term loan-1 and funded interest term loan were to be repaid in 26 quarterly installments starting from July, 2009 and interest is to be serviced as and when due from July, 2009 onwards. Thus, the petitioners are liable to pay interest on the loans as and when charged and in default of payment of interest, the accounts of the petitioners are liable to be classified as NPA, as per the guidelines of the RBI. According to the respondent/ bank, the petitioners could not commence the operation of the unit and they failed to re-pay the working capital term loan interest also. It is not disputed that the respondent/bank addressed a letter dated 28.06.2009 to the petitioners wherein it is stated that during personal visit by the General Manager, the unit was found not running and the turn over since inception of the unit was very poor and the update stock statement and statement of book debts duly signed by the Chartered Account were also not submitted and that there was no sign of improvement in the status of the account. In the said notice, the petitioners were informed that the account has already been classified as stressed asset and it will fall into NPA if no improvement is shown. The petitioners were also cautioned about the possibility of initiation of recovery procedures. It is also not disputed that on 11.07.2009 the respondent/bank addressed another letter to the petitioners reiterating the contents of the earlier letter and expressing regret over no improvement in the operations in the account. As there was no response from the petitioners, the respondent/bank classified the account as NPA and informed the same to the petitioners by their letter dated 21.07.2009. In the said letter, the respondent/bank, after referring to the earlier two letters dated 28.06.2009 and 11.07.2009 and noting that there was no improvement in the account and demanded payments of the amounts stated therein. In the said letter, it was also intimated to the petitioners that the account has already been classified as NPA and in the absence of positive response, the bank would initiate recovery procedures, including auction under SARFAESI Act. According to the respondent/bank, the cash credit account of the petitioners was over drawn for more than three months and, therefore, it was classified as NPA on 22.07.2009 and the same was entered into the books of account on 31.07.2009. According to the respondent/bank, as per the guidelines of the RBI, the bank has to classify all the accounts of the borrowers as NPA even if one of the accounts is irregular. The Prudential Norms on Income Recognition, Asset Clarification and Provisioning pertaining to advances para 4.2.6 contemplates as follows: “It is difficult to envisage a situation when only one facility to a borrower becomes a problem credit and not others. Therefore, all the facilities granted by a bank to a borrower will have to be treated as NPA and not the particular facility or part thereof which has become irregular.” As per para 2.1.3 of the said norms, w.e.f., 31.03.2004, an NPA shall be a loan or an advance where among other things interest and/or installment of principal remain overdue for a period of more than 90 days in respect of a term loan. The respondent would, therefore, contend that the accounts were declared as NPA as per the guidelines issued and norms prescribed by the reserve bank. 10. It is not disputed that the respondent issued notice under Section 13(2) of the Act on 06.08.2009 wherein the particulars of the outstanding amounts due under the various loans/credit facilities were mentioned in detail. The petitioners were further notified that if the dues are not remitted within sixty days, the bank would exercise its rights under the Act by taking appropriate legal action. To this notice, the petitioners claimed to have given a reply on 05.10.2009. The respondent, on the other hand, would contend that no reply as such was given to their notice issued under Section 13(2) on 06.08.2009 and the letter dated 05.10.2009 addressed by the petitioners to the respondent/bank is an independent representation seeking time to reduce the over dues. In the said letter dated 05.10.2009, the petitioners have no where stated that it was in reply to the notice dated 06.08.2009 issued under Section 13(2) of the Act. The letter dated 05.10.2009 of the petitioners does not also make any reference whatsoever to the contents of the notice issued under Section 13(2) of the Act. What all the petitioners stated in the letter dated 05.10.2009 is that since three months their efforts could not materialize and they hope to improve the situation in 15 to 20 days and they are planning to run the unit from October 18th and to show their bona fides they would pay Rs.5 lakhs before commencement of running of the unit and in the said letter, the petitioners have submitted a plan for regularization of all over due installments in the manner indicated therein and sought respondents’ help to revive the unit. A perusal of the said letter dated 05.10.2009 would show that it was only a representation made by the petitioners proposing a plan of re-scheduling of the outstanding loans and seeking the help of the respondent/bank to revive the unit. The said letter dated 05.10.2009, which does not make any reference to the earlier notice dated 06.08.2009 issued by the bank, cannot be construed to be a reply to the notice under Section 13(2) of the Act. Thereafter, the respondent/ bank issued notice dated 24.10.2009 under Section 13(4) of the Act for taking possession of the assets, the particulars of which are described therein. In the said notice, reference is made to the issuance of notice under Section 13(2) dated 06.08.2009 calling upon the petitioners to discharge a sum of Rs.5,41,25,247.33 Ps and the failure of the petitioners to discharge the liability even after expiry of sixty days. The grievance of the petitioners that notice under Section 13(4) is issued without considering their reply dated 05.10.2009 to the notice dated 06.08.2009 issued under Section 13(2) is untenable for the simple reason that the letter dated 05.10.2009 addressed by the petitioners to the respondent/bank is not by way of a reply to the notice dated 06.08.2009 issued under Section 13(2), but is in the nature of an independent representation putting forward a proposal of their own for re-structuring the repayment schedule. When that is so, the question of violation of Section 13(3A) of the Act does not arise. Section 13(3A) contemplates that if on receipt of the notice under sub-Section (2), the borrower makes any representation or raises any objection, the secured creditors shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week on receipt of such representation or objection the reasons for non- acceptance of the representation or objection to the borrower. A careful reading of the above provision would reveal that after issuing the notice under Section 13(2) and before proceeding further by the bank, an opportunity of making a representation or raising an objection is given to the borrower and if such representation or objection is made, the same shall be considered by the secured creditor and if it is found to be not acceptable or tenable, the same shall be communicated within one week to the borrower together with reasons for non-acceptance. The representation to be made or the objection to be raised by the borrower is necessarily by way of response to the notice issued under Section 13(2). In the present case, the letter dated 05.10.2009 addressed by the petitioners cannot be construed to be in the nature of a representation or objection contemplated under Section 13(3A) and in response to the notice under Section 13(2) of the Act. The learned counsel for the petitioners rely on a decision in KRUSHNA CHANDRA SAHOO V. BANK OF INDIA &ORS[1], whereunder it was held as follows:- “A conjoint reading of both the provisions referred to hereinabove makes it clear that it is obligatory on the part of the authority first to consider and dispose of the objection by a speaking and reasoned order and communicate the order of the person aggrieved i.e., the borrower/guarantor. It is a condition precedent for issuance of notice under Section 13(4) of the Act. The authority cannot ignore the statutory provisions treating them merely to be a decoration piece in the statutes rather they require strict adherence for the simple reason that the financial institutions have been conferred with certain privileges for making expeditious recovery from the borrowers by-passing the onerous and lengthy procedure of civil suits.” In the above case, to the notice dated 13.02.2008 issued under Section 13(2) of the Act, the petitioner therein submitted his petition through counsel on 07.03.2008 taking several objections, including factual controversies and in spite of raising the objection, the impugned notice dated 28.05.2008 under Section 13(4) of the Act was issued without deciding the petitions. The above decision is not applicable to the facts of the present case for the reason that no representation was made nor objections raised by the petitioners to the statutory notice issued under Section 13(2) of the Act and the letter dated 05.10.2009 cannot be construed to be such a representation or objection falling within the ambit of Section 13(3A). The contention of the petitioners that notice under Section 13(4) of the Act was issued in violation of Section 13(3A) is, therefore, untenable. The respondent/bank is within its rights in issuing the notice invoking the provisions of Section 13(3A), as the petitioners failed to repay the amounts which were due and outstanding in respect of the loan accounts/credit facilities, which were declared as NPA as per the guidelines issued and norms prescribed by the RBI. 11. In the result, the civil revision petition is dismissed. Interim stay granted earlier stands vacated. There shall be no order as to costs. _____________________ G.V.SEETHAPATHY, J 05th August, 2011 Lrkm. [1] AIR 2009 ORISSA 35