THE HONOURABLE SRI JUSTICE GODA RAGHURAM AND THE HONOURABLE SRI JUSTICE NOUSHAD ALI W.P.NO.10707 and 11932 of 2010 09-06-2010 BETWEEN; (W.P.No.10707 of 2010) M/s.Hazen Pharmaceuticals Ltd., rep. by its Executive Director K.Prasad Reddy ...Petitioner vs. State Bank of Hyderabad, Hyderabad and another ...Respondents THE HONOURABLE SRI JUSTICE GODA RAGHURAM AND THE HONOURABLE SRI JUSTICE NOUSHAD ALI W.P.NO.10707 and 11932 of 2010 ORAL COMMON ORDER: (Per GR,J) These writ petitions are by the same borrower who availed cred facilities from the 1st respondent-bank, a secured creditor, and defaulted i repayment of the instalments. The secured creditor determined the loan account as a non-performin asset (NPA) on 30-09-2007 and issued a demand notice dated 09-01 2008 under Section 13(2) of the Securitisation and Reconstruction o Financial Assets and Enforcement of Security Interest Act, 2002 (for short the Securitisation Act”) intimating an outstanding aggregate liability o Rs.6,90,61,640.45 paise exclusive of interest from 01-09-2007 and als intimating the liability to pay future interest at the contractual rate on th aforesaid amount together with incidental expenses, costs, charges etc and called upon the borrower to repay the amount within sixty(60) days. On receipt of the demand notice issued under Section 13(2) of th Securitisation Act above, the petitioner submitted two representations, on on 31-01-2008 and another on 28-02-2008. In the first representation, t the extent relevant and material for the purposes of these writ petitions, th petitioner pleaded that they had complained to the Insurance Regulator Authority Grievance Cell, Hyderabad about the delay of the settlement o insurance claim with the United India Insurance Company with whom th borrower had a insurance policy in respect of its industry which wa allegedly subjected to a fire accident. The borrower in this representatio pleaded with the secured creditor not to precipitate and pursue th proceedings under the Securitisation Act in view of the delay in processin of its insurance policy. In the second representation dated 28-02-2008, th petitioner informed the secured creditor that the insurance company abov had repudiated the insurance claim on the ground that the vendor’ transactions are doubtful; that the secured creditor being authorised agen of the insurance company is requested to send a written protest to th insurance company to reassess the petitioner’s claim and to settle th same. In this representation, the petitioner also sought recall/abandonmen of the proceedings under the Securitisation Act. Without communicating the response to the representations/objection lodged by the borrower qua its representations dated 31-01-2008 and 28 02-2008, the secured creditor proceeded to issue a possession notic dated 10-03-2008 invoking the powers under Section 13(4) of th Securitisation Act. Aggrieved thereby, the petitioner filed W.P.No.5717 o 2008. This writ petition was disposed of by a learned Division Bench o this Court by the judgment dated 04.03.2010. This court invalidated th possession notice dated 10-03-2008 on the ground that Section 13(3A) o the Securitisation Act enjoins a linier, non-derogable obligation on th bank to communicate its response to any objections/representation presented by a borrower. Thereafter and pursuant to the orders of thi Court above, the secured creditor by a communication dated 26-03-201 addressed the borrower stating that it has considered the petitioner’ representation dated 31-01-2008 and is unable to accommodate th petitioner’s request for recalling or aborting further proceedings under th Securitisation Act. In this communication, the secured creditor whil referring to the representation of the borrower dated 31-01-2008 (thoug not referring the other representation dated 28-02-2008) has clearly take the decision that pendency of the insurance claim with the insuranc company does not absolve the obligation of the borrower to regularise th account in terms of the demand issued under Section 13(2) an specifically stated that the settlement of the insurance is a matter betwee the borrower and the insurance company, to be processed by th insurance company based on its rules and regulations and that the role o the secured creditor in settlement of the insurance claim is limited to th extent of forwarding the claim submitted by the borrower and that it has n role to play in facilitating the settlement of such claim by the insuranc company. Challenging the response dated 26-03-2010 purportedly issue by the secured creditor q u a the provisions of Sec 13(3A) of th Securitisation Act, W.P.No.10707 of 2010 is filed. The secured credito consequent on its response dated 26-03-2010 (adverted to supra) issued possession notice dated 20-05-2010 under Rule 8(1) of the Securit Interest (Enforcement) Rules,2002 read with Section 13(4) of th Securitisation Act. W.P.No.11932 of 2010 is filed on the same fundamenta premises, on which the other writ petition is filed namely that proceedin with the process under the Securitisation Act on the basis of the bank’ response dated 26.03.2010 which is inadequate and is only partia consideration of the two representations of the borrower dated 31-01-200 and 28-02-2008 (only the representation dated 31-01-2008 wa considered and not the representation dated 28.02.2008). Sri C.Raghu, the learned counsel for the petitioner would strenuousl contend that the provisions of Section 13(3A) of the Securitisation Ac enable the borrower to make any nature of representation or objection an the secured creditor is obligated to consider such representation o objection and comes to the conclusion thereafter that such representatio or objections is not acceptable or tenable the secured creditor is obligate further to communicate the reasons for non-acceptance of the applicatio or objection to the borrower. Sri Raghu would further contend that the borrower is entitled not onl to make a representation or objection with regard to any technical o substantive infirmities in the initiation of process under the provisions o the Act, such as any incoherence or inaccuracy in the determination of th quantum of the borrower’s liability or infirmity in the determination of th account as NPA qua any prudential norms, guidelines issued by th Reserve Bank or other authorised agency but is also entitled to subm representation or objections to the bank’s pursuit of proceedings under th Act on special grounds such as financial or other commercia circumstances of the borrower so as to fertilise a rational decision makin process by the secured creditor with regard to exercise of discretion as t the pursuit of the proceedings under the provisions of the Securitisatio Act. In our considered view, the contention urged by Sri Raghu, on beha of the petitioner, does not wholly commend acceptance by this Court whil borrower may be entitled to make any representation, the bank i statutorily and having regard to the text and tenor of the provisions of th Act required to consider only whether the initiation of proceedings unde the provisions of the Act is vitiated by any infirmity as to the quantificatio of the borrower’s liability or any threshold condition precedent such a determination of the account as NPA. Representation in other area by th borrower as to its personal circumstances, which resulted in its inability t process its liability to the secured creditor may be considered within th plenitude of the discretion of the secured creditor but such non consideration or rejection of any such representations would not invalidat the proceedings under the Securitisation Act. For valid initiation or proceedings and pursuit thereof, q u a th provisions of the Act, the Act enjoins raft of threshold conditions, which ar condition precedent to such valid initiation. In brief, such conditions are:- (a) The recipient process must be a borrower as defined i Section 2(f); (b) He should be under a liability to a secured creditor under security agreement, the secured creditor having been define in Section 2(zd) and a security agreement defined in Sectio 2(zb); (c) The borrower must have committed default in repayment o the security debt or any instalments thereof; and (d) His account in respect of such debt must have bee classified by the secured creditor as a NPA. A non performin asset within the definition of that term in Section 2(o) namel an asset that is classified an asset or account of a borrowe which is classified by a bank as sub-standard, doubtful or los asset and in accordance with the directions or guideline relevant to assets classification issued by the RBI or othe regulatory authority or body established, constituted o appointed by any law for the time being in force, vide Sectio 2(o). Section 31 of the Securitisation Act enumerates the classes of case and circumstances to which the provisions of the Act are not to apply an clause (h) of this provision enjoins that any security interest for securin prepayment of any financial asset not exceeding one lakh rupees i outside the purview of the provisions of the Securitisation Act. Reference to the provisions of Section 31 is to be found in th definition of “security interest” in Section 2(zf) of the Securitisation Act. O fulfilment of the aforesaid conditions i.e., threshold conditions of initiatio of proceedings under the provisions of the Act, the secured creditor i entitled to issue a demand notice under Section 13(2) upon which th borrower is entitled to make representation or lodge objections which the obligated to consider by the secured creditor and further obligated t furnish a response under Section 13(3A). In our considered view that ther are no such impediments which invalidate initiation of proceedings unde the provisions of the Securitisation Act, though on the facts on hand th bank has formally not referred to the borrower’s second representatio dated 28-02-2008 in its response dated 26-03-2010 [issued under th provisions of Section 13(3A)]. It requires to be noticed that generi unequivocal response of the secured creditor is that it is not in any wa concerned with any hiatus in the insurance company furnishing o petitioner’s claim and that it is only concerned with the liability of th borrower to it. Such a response negatives and clearly the representatio reiterated in the petitioner’s communication dated 28.02.2008 which i also to the effect that its claim has been rejected/repudiated by th insurance company and that the secured creditor should use its goo officers to persuade the insurance company to settle and pay up th insurance claim. On the aforesaid analyses, this court finds no infirmity in the respons dated 26-03-2010 communicated by the secured creditor to the objection lodged by the petitioner in purported fulfilment of its obligation unde Section 13(3A) of the Securitisation Act nor any infirmity in the issuance o the possession notice dated 20-05-2010 under Rule 8(1) of the Securit Interest (Enforcement) Rules, 2002 read with Section 13(4) of th Securitisation Act. There are no merits. The writ petitions are accordingly dismissed. No order as to costs. ______________ GODA RAGHURAM,J ______________ NOUSHAD ALI,J 9th JUNE 2010 TSNR