IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 16.09.2010 CORAM : THE HONOURABLE Mrs.JUSTICE R.BANUMATHI and THE HONOURABLE Mr.JUSTICE B.RAJENDRAN Writ Petition No.19621 of 2010 and M.P.No.1 of 2010 M/s.Badma Tool Manufacturers Pvt.Ltd., 33,III Cross Street Balaji Nagar Ambattur O.T., Chennai – 600 053. .... Petitioner Vs. 1.Indian Bank, Villivakkam Branch Chennai – 600 049. 2.The Chief Manager Asset Recovery Management Branch-II 4th Floor, No.55, Ethiraj Salai, Egmore, Chennai – 600 008. ... Respondents Prayer: Writ Petition filed under Article 226 of Constitution of India seeking for the relief of issuance of writ of declaration to declare that the award passed by the Lok Adalat on 28.8.2004 is binding on the respondent and any action by the bank taken in derogation of the Legal Services Authorities Act is not valid and binding under any other law in force including SARFAESI Act. For Petitioner : Mr.S.N.Amarnath For Respondents : Mr.Jayesh B.Dolia for RR1 and 2 for M/s.Aiyar & Dolia ORDER R.BANUMATHI,J. This Writ Petition has been filed to declare that the award passed by the Lok Adalat on 28.8.2004 is binding on the Respondent and any action taken by the Bank in derogation of Legal Services Authorities Act is not valid and binding under any law in force including the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short, "SARFAESI https://hcservices.ecourts.gov.in/hcservices/ Act"). 2. The Writ Petitioner is a Private Limited company. In the year 1990, for its business purpose, Petitioner has availed various financial facilities – (i) open cash credit facility of Rs.1,30,000/-, (ii) medium term loan to the tune of Rs.25,00,000/- and (iii) supply bills purchased facility of Rs.2,80,000/-. The Writ Petitioner failed to pay the amounts and committed default in repaying the amount due. The loan accounts have been classified as Non-Performing Asset since 31.3.1997. Originally, the claim was filed in 1998 in O.A.No.1706 of 1998 before the Debt Recovery Tribunal-I, Chennai, which was later transferred to Debt Recovery Tribunal-II, Chennai in O.A.No.1405 of 2001. Debt Recovery Tribunal-II passed the order on 1.4.2002 in O.A.No.1405 of 2001 directing the Petitioner to pay a sum of Rs.1,07,16,917.72 towards the loan availed from the Respondent Bank and consequently the Recovery Certificate was issued. Subsequently, the matter was considered by the Lok Adalat and by consent of both parties, Award was passed for a sum of Rs.75,00,000/-, whereunder the Petitioner agreed to pay Rs.10 lakhs on 1.9.2004, Rs.10 lakhs on or before 10.9.2004 and the balance amount of Rs.55 lakhs on or before 31.12.2004 with PLR simple interest from 28.8.2004 till the date of full and final payment. Further the Award contained the conditional clause to the effect that in case of default in the payment of the said amounts as per the compromise, the Respondent bank is entitled to recover the entire amount as prayed for in the O.A. On the basis of the award of Lok Adalat, final order was passed in O.A.No.1405 of 2001 on 14.10.2004. The Petitioner paid only Rs.10 lakhs and failed to comply with the terms of the award passed in the Lok Adalat. Petitioner filed applications - I.A.Nos.438 and 439 of 1996 on 4.9.2006 in the Debt Recovery Tribunal (in short, "DRT") to direct the Respondent bank to extend time for payment of the said amount and also to stay further proceedings in the recovery certificate No.99/2002. Application for extension of time was dismissed by DRT. 3. The Petitioner filed appeal in M.A.No.148 of 2007 on the file of DRAT and on the date of hearing, on 29.8.2007, the counsel for the Petitioner was not present and hence the said appeal was dismissed and DRT was directed to proceed with the matter in accordance with law. Thereafter, the Petitioner has filed Petition – I.N.No.668 of 2007 in M.A.No.148 of 2007 to review the order passed by the DRAT. The said Review Application - I.N.No.668 of 2007 was dismissed on 9.1.2008. The said order dismissing the Review Application was challenged in W.P.No.3738 of 2008. Pointing out that the Petitioner did not choose to pay the remaining amount the said writ petition was dismissed on 13.2.2008. 4. Thereafter the 3rd Defendant in O.A.No.1405 of 2001 – P.Parameswari filed applications – I.A.Nos.410 to 413 of 2008 in O.A.No.645 of 2007 before the DRT-III, Chennai (on transfer of https://hcservices.ecourts.gov.in/hcservices/ O.A.No.1405 of 2001 from DRT-II, Chennai to DRT-III, Chennai, O.A. was re-numbered as O.A.No.645 of 2007) to set aside the final order passed on 14.10.2004 on the basis of the award of Lok Adalat and to declare that the settlement arrived between the Bank and the Petitioner will not be binding on her (as she was exparte in the proceedings) and praying to release her properties. The said applications were allowed on 20.4.2009 inter alia directing the 3rd Defendant - Parameswari to pay Rs.32,16,917.72ps and liberty was given to the Bank to transfer the amount of Rs.65 lakhs lying in 'no lien account' to the loan account of the defendants immediately and appropriate the same. It was further ordered that on compliance of the conditions, the debt recovery certificate shall be deemed to be fully satisfied and further recovery proceedings shall stand closed insofar as 3rd defendant – Parameswari. But the 3rd Defendant did not comply with the order and the Petition was dismissed for non-payment of the amount. Therefore, the decree and the Lok Adalat order had become final. Thereafter the Bank issued notice under Section 13(2) on 19.11.2009 calling upon the Petitioner to pay a sum of Rs.7,22,40,091/-. In response to 13(2) notice, the Petitioner has sent reply on 20.1.2010 and further a rejoinder. The Bank has sent its reply on 1.2.2010 stating that the borrower has not complied with the award of Lok Adalat dated 28.8.2004 and the final order passed in O.A.No.1405 of 2001 on the basis of the award of Lok Adalat. Possession notice was issued on 5.5.2010 and paper publication was effected on 8.5.2010. At that stage, Petitioner has filed this writ petition seeking for declaration that the award passed by the Lok Adalat on 28.8.2004 is binding on the Respondent Bank. 5. Notice was served upon the Respondent Bank and the Bank is represented by Mr.Jayesh B.Dolia. With the consent of the counsel for the Petitioner and the Respondent, at the stage of admission, the main Writ Petition itself was taken up for final hearing. Argument of both was heard at length. 6. Learned counsel for Petitioner Mr.Amarnath inter alia raised the following submissions: ●As per the provisions of Legal Services Authorities Act, the award passed by the Lok Adalat on 28.8.2004 has become final and as per the judgment of the Supreme Court in the case of P.T.Thomas Vs.Thomas Job (2005) 6 SCC 478, the same cannot be set aside or modified and notice under Section 13(4) of the SARFAESI Act is illegal and against the spirit of Legal Services Authorities Act. ●Non-compliance of Section 13(3A) of SARFAESI Act vitiates the proceedings as there was a delay in sending a reply by the Bank to the objections given by the Petitioner for notice under Section 13(2). https://hcservices.ecourts.gov.in/hcservices/ ● When the proceedings was taken under the Recovery of Debts due to Banks and Financial Institutions Act , (in short, "DRT Act") and an award was also passed in the Lok Adalat, the provisions of SARFAESI Act cannot be resorted to six years thereafter. ●Claim of the Bank is barred by limitation. 7. Learned counsel for the Respondent Mr.Jayesh B.Dolia submitted that as per the decision of TRANSCORE VS. UNION OF INDIAK AND ANOTHER, (2008) 1 SCC 125, Bank is at liberty to proceed either under DRT Act or SARFAESI Act or under both. Drawing our attention to the various proceedings, learned counsel for the Respondent Bank submitted that the Petitioner has filed number of applications and also earlier writ petition and having failed in the earlier attempts, he has filed this writ petition. Drawing our attention to the reply of Respondent Bank dated 1.2.2010, learned counsel for the Respondent Bank has submitted that Section 13(3A) has been complied with. Drawing our attention to UNITED BANK OF INDIA VS. SATYAWATI TONDON AND OTHERS, (2010) BC 495 (SC), learned counsel for the Respondent Bank submitted that when a statutory forum is created by law for redressal of grievance the writ petition should not be entertained ignoring the statutory dispensation. 8. In the recovery proceedings initiated by the Recovery Officer, Recovery Certificate was issued by the DRT in O.A.No.1405 of 2001 for recovery of Rs.2,20,18,891.72ps. Thereafter the matter was referred to Lok Adalat and Lok Adalat passed the award on 28.8.2004 which reads as under: "... Both the parties agreed for a sum of Rs.75,00,000/- (Rupees Seventy five Lakhs only). The Joint memo is filed and recorded as per the terms of compromise. The Borrower shall pay Rs.10 Lakhs immediately, i.e., on or before 1.9.2004, another sum Rs.10,00,000/- by 10th September, 2004. The Balance amount of Rs.55,00,000/- (Rupees Fifty five Lakhs only) shall be paid on or before 31.12.2004 with PLR simple interest from 28.8.2004 till the date of full and final payment of reducing balance. On payment of the entire amount as per this award, the Bank shall release all the properties secured with the Bank as scheduled hereunder ....... In case of any default in payment of the amount as per the compromise, the bank is entitled to recover the entire amount as prayed in O.A.No.1405/2001." 9. After passing of the award, Petitioner paid Rs.10 Lakhs on 30.8.2004. Thereafter the Petitioner failed to pay the balance amount https://hcservices.ecourts.gov.in/hcservices/ of Rs.65 lakhs in two instalments within the time stipulated in the award. Only in the year 2006, the Petitioner filed petitions – I.A.Nos.438 and 439 of 2006 on 4.9.2006 seeking for extension of time to pay the balance amount and for stay of proceedings in Recovery Certificate No.99 of 2002 and the same were dismissed by DRT. 10. The contention of the learned counsel for Petitioner is that the award passed by the Lok Adalat has become final and no appeal lies against the award and therefore notice issued under Section 13(4) of the SARFAESI Act is illegal. It was contended that under Section 22-E of the Legal Services Authorities Act, any award passed by the Lok Adalat is binding on all parties and the same shall not be called in question in any Original Suit and that it should be executed as if it is a decree of the civil Court. It was further submitted that as per Section 25 of the Legal Services Authorities Act, the provisions of the Act shall have overriding effect notwithstanding anything inconsistent with any other law for the time being in force. Placing reliance upon P.T.Thomas Vs.Thomas Job (2005) 6 SCC 478, it was contended by the learned counsel for the Petitioner that the award of Lok Adalat is final and permanent and the same is an ending to the litigation among the parties and while so issuance of notice under Section 13(4) of SARFAESI Act is illegal and against the spirit and scope of Legal Services Authorities Act. 11. Under Section 21 of the Legal Services Authorities Act, every award of the Lok Adalat shall be deemed to be decree of a Civil court and where a compromise or settlement has been arrived at, by a Lok Adalat, the Court-fee paid in such case shall be refunded in the manner provided under the Court Fees Act. Section 21(2) of the Act gives finality to the decision of the Lok Adalat and no appeal shall lie to any Court against the award passed by the Lok Adalat. 12. It is no doubt true that the award passed by the Lok Adalat is binding between all parties to the case. As pointed out earlier, even in the award, it is made clear that in case of any default in payment of the amount as per the compromise the Bank is entitled to recover the entire amount as prayed in O.A.No.1405 of 2001. When the Petitioner has not complied with the terms of the award by paying the amount within the stipulated time, as per the terms of the award, the Respondent Bank is at liberty to recover the entire amount as prayed in O.A.No.1405 of 2001. Further it would also mean as per the Lok Adalat decree that on default the claim amount has become the decree amount. 13. As pointed out earlier, the Petitioner has paid Rs.10 lakhs on 30.8.2004. The balance remaining instalments of another Rs.10 lakhs was payable by 10.9.2004 and the balance amount of Rs.55 lakhs was payable on or before 31.12.2004. Even though the Petitioner has not deposited the amount within the stipulated time it is pertinent to note that the Petitioner has not filed any application before the https://hcservices.ecourts.gov.in/hcservices/ DRT seeking for extension of time. Nearly two years after the date of expiry of time granted by the Lok Adalat i.e., on 4.9.1996 Petitioner has filed applications I.A.Nos.438 and 439 of 2006 seeking for extension of time and for stay of further proceedings in the recovery certificate No.99/2002, which were dismissed by the DRT. 14. The Petitioner has filed appeal in M.A.No.148 of 2007 before the Debt Recovery Appellate Tribunal (in short, "DRAT") and when the matter was posted for final hearing on 29.8.2007 before the DRAT the Petitioner was not present and hence upon hearing the counsel for Respondent Bank, the Appeal – M.A.No.148 of 2007 was dismissed and DRT was directed to proceed with the matter in accordance with law. The Petitioner has also filed a review application in I.N.No.668 of 2007 and the same also came to be dismissed on 9.1.2008, which again was challenged before this Court in W.P.No.3738 of 2008. In the said writ petition, the same points were raised contending that the award passed by the Lok Adalat has become final and binding between the parties. Pointing out that the terms of the award passed by the Lok Adalat was not complied with, A Division Bench of this Court has dismissed the said writ petition on 13.2.2008. Having failed to comply with the terms of the award, it is not open to the Petitioner to seek for a declaration that the award passed by the Lok Adalat on 28.8.2004 is still binding between the parties notwithstanding the default of the writ Petitioner. 15. Learned counsel for Petitioner nextly contended that it is mandatory to consider the reply and there has been total non- compliance of Section 13(3A) and therefore the entire proceedings is vitiated. It was further submitted that possession notice could be issued by the Bank only after communication of non-acceptance of objections and without so communicating and without complying the mandatory provisions of Section 13(3A), possession notice is illegal. In support of his contention, learned counsel placed reliance upon an unreported judgment of the Karnataka High Court in W.P.No.9694 of 2005 (GM-RES) (MRS. SUNANDA KUMARI AND ANOTEHR VS. STANDARD CHARTERED BANK) DATED 23.3.2006. Observing that the secured creditor is statutorily bound to consider the borrower's objection, the Karnataka High Court in the said judgment held as under: "Sub-section (3A) casts a duty on the secured creditor to consider the representation made or objection raised by the borrower and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he is bound to communicate to the borrower the reasons for non-acceptance within one week of receipt of the representation or objection. Thus, sub-section (3A) confers on the borrower a right to know the reasons for the non-acceptance of his representation or objection by the secured creditor. Hence the secured creditor is statutorily bound to consider the borrower's representation or objection and if the https://hcservices.ecourts.gov.in/hcservices/ representation or objection is not tenable or acceptable, he is also bound to communicate the reasons for such non-acceptance." 16. Section 13(3A) was inserted after the judgment of the Supreme Court in Mardia Chemicals vs. Union of India (2004) 3 SCC 311. Section 13(3A) of the SARFAESI Act is mandatory and omission to consider representation is fatal. If the borrower makes any representation or raised any objection, the secured creditor 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, secured creditor shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection of the borrower. 17. There is no force in the contention of the learned counsel for the Petitioner that Section 13(3A) has not been complied with. As pointed out earlier, Section 13(2) notice was issued on 19.11.2009, which was received by the borrower on 24.11.2009. Nearly two months after receipt of the notice, the borrower/writ Petitioner sent the reply on 20.1.2010. Even though notice by R.P.A.D. was sent on 20.1.2010, it is not known when it was received by the Bank. The Bank has sent its reply on 1.2.2010. In between, there were two week end holidays and also a public holiday i.e., on 26.1.2010. Therefore, it cannot be contended that the reply sent on 1.2.2010 is beyond statutory time of one week and that there was non-compliance of Section 13(3A). 18. In Mardia Chemicals vs. Union of India (2004) 3 SCC 311, the Apex Court stated that the reasons for not accepting the objections of borrower must be communicated to the borrower and the reasons so communicated shall only be for the purpose of the information/knowledge of the borrower without giving rise to any right to approach the Debts Recovery Tribunal under section 17 of the Act, at this stage. The Hon'ble Supreme Court explained that communication of reasons not to accept the objections of the borrower is for the purpose of knowledge which would be a step towards his right to know as to why his objections have not been accepted by the secured creditor, who intends to resort to harsh steps of taking over the management/business. Thus, the basic object of Section 13(3A) is to ensure the element of transparency and fair play in the implementation of the provisions of SARFAESI Act. In our considered view, there is no violation of the mandatory provision of Section 13 (3A). 19. The Debt Recovery Certificate issued in D.R.C.No.99 of 2002 dated 4.7.2002 culminated in the award passed by the Lok Adalat on 28.8.2004. On the basis of the award of Lok Adalat, DRT-II passed the final order in O.A.No.1405/2001 on 14.10.2004. Learned counsel for Petitioner contended that in the proceedings initiated under DRT Act, when final order was passed in O.A.No.1405 of 2001 on https://hcservices.ecourts.gov.in/hcservices/ 14.10.2004, nearly six years thereafter the Bank was not justified in invoking the provisions of SARFAESI Act and issuance of notice under Section 13(2) is per se illegal. 20. The issue as to whether the bank could resort to exercise its rights under the NPA Act even after initiating a proceeding under the DRT Act is no longer res integra after the judgment of the Supreme Court in the case of Transcore v. Union of India and another (2008) 1 SCC 125. In paragraph 69 of the judgment, the Apex Court observed as follows: "69. For the above reasons, we hold that withdrawal of the OA pending before DRT under the DRT Act is not a precondition for taking recourse to the NPA Act. It is for the bank/FI to exercise its discretion as to cases in which it may apply for leave and in cases where they may not apply for leave to withdraw. We do not wish to spell out those circumstances because the said first proviso to Section 19(1) is an enabling provision, which provision may deal with myriad circumstances which we do not wish to spell out herein." 21. From the Transcore judgment (supra) it is clear that the object behind introducing the first proviso and the third proviso to section 19(1) of the DRT Act was to align the provisions of DRT Act, the NPA Act and Order 23 CPC. The Hon'ble Apex Court in clear and categorical terms permitted the bank to invoke its remedies under the NPA Act, 2002, even after having elected to seek remedy in terms of the DRT Act, 1993, for realising the secured assets without withdrawing or abandoning the O.A. and the proceedings thereon filed before the DRT under the DRT Act. 22. Learned counsel for Petitioner nextly contended that the loan accounts have been classified as non-performing asset (NPA) since 31.3.1997 and the period prescribed under Article 62 of the Limitation Act is 12 years and Section 13(2) notice issued on 19.11.2009 is beyond the period of limitation and the same is barred by time. The learned counsel contended that as per Section 36 of SARFAESI Act, provisions of the Limitation Act is applicable to actions provided under the Act. It was further contended that Article 62 of the Limitation Act prescribes the limitation for enforcing the right of a mortgagee where immovable properties are offered as collateral security by way of mortgage and the period prescribed under Article 62 is 12 years and the notice issued under Section 13 (2) (19.11.2009) is clearly barred by limitation and such action is prohibited under Section 36 of the SARFAESI Act. 23. The contention that the notice issued under Section 13(2) on 19.11.2009 is barred by limitation cannot be countenanced. The Various dates and events would show that the matter was pending at https://hcservices.ecourts.gov.in/hcservices/ one stage or other mainly at the instance of the writ Petitioner. It is no doubt true that the loan account was classified as NPA since 31.3.1997. O.A.No.1706 of 1998 was filed by the Bank before the DRT-I and the same was transferred to DRT-II and re-numbered as O.A.No.1405 of 2001 and the O.A was allowed on 1.4.2002. In D.R.C.No.99 of 2002, Debt Recovery Certificate was issued on 4.7.2002. Thereafter the matter was referred to Lok Adalat and award was passed on 28.8.2004. On the basis of Award passed in Lok Adalat, an order was passed by the Debt Recovery Tribunal in O.A.No.1405 of 2001 on 14.10.2004. 24. As per Section 2(ha) of the SARFAESI Act, "debt" shall have the meaning assigned to it in clause (g) of Section 2 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. Section 2 (g) of Recovery of Debts due to Banks and Financial Institutions Act would cover any liability including a decree or order of any civil Court. Section 2(g) reads as under: ""debt" means any liability (inclusive of interest) which is alleged as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or whether payable under a decree or order of any civil court or otherwise and subsisting on, and legally recoverable on, the date of the application." 25. Under Section 21 of Legal Services Authorities Act, every award of the Lok Adalat shall be deemed to be a decree of a Civil Court. Where any borrower, who is under the liability to a secured creditor, makes any default in repayment of a secured debt and his account in respect of debt is classified by the secured debtor as a non-performing asset, the secured creditor shall be entitled to exercise all or any of the rights under section 13(4). In our considered view, award passed by the Lok Adalat and the final order passed by DRT on 14.10.2004 is a debt within the meaning of Section 2 (ha) of the SARFAESI Act and Bank was well within its rights in issuing notice under Section 13(2) of SARFAESI Act. The Petitioner cannot contend that the limitation starts from 31.3.1997 on which date the loan accounts have been classified as non-performing