IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) THURSDAY, THE TWENTY EIGHTH DAY OF FEBRUARY TWO THOUSAND AND EIGHT PRESENT THE HON'BLE MR JUSTICE P.S.NARAYANA WRIT PETITION NO : 27019 of 2007 Between: 1. Rayan Pharma Limited, Anaparthi, East Godavari District, Rep. by its Managing Director Sri P. Ranganayaka Murthy, S/o. Sri Rama Brahmanandam. 2. P. Ranganayaka Murthy, S/o. Sri Rama Brahmanandam. R/o. Anaparthi, East Godavari District. ..... PETITIONER(S) AND State Bank of India, Ananparthi Branch, Rep. by its Cheif Manager/Authorized Officer, Anaparthi, East Godavari District. .....RESPONDENT Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to issue a Writ of Mandamus, or any other appropriate writ, order or direction, declaring the action of the Respondent Bank in issuing Sec. 13(2) Notice Dt. 17-9-2007 to the first Petitioner Company and thereafter issuing Possession notice under Rule 8 of Security Interest (Enforcement) Rules and publishing a contradictory Notice under Rule 8 in the Newspaper as illegal, arbitrary and contrary to Sec. 13(2) of Securitization & Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 and Rule 8 of the Security Interest (Enforcement) Rules 2002 and consequently set aside the proceedings initiated under Sec. 13(2) Notice Dt. 17-9-2007 and pass Counsel for the Petitioner:MR.C.RAGHU Counsel for the Respondent No.: SRI K.B . RAMANNA DORA The Court made the following : ORDER: This Court ordered notice before admission on 18.12.2007 and granted interim stay on condition of petitioners depositing a sum of Rs.1.00 lakh within a period of eight weeks. It is stated that the condition order had been complied with. W.V.M.P.No.387 of 2008 is filed to vacate the interim order. 2. Heard Sri C. Raghu, learned counsel representing writ petitioners and Sri K.B. Ramanna Dora, learned counsel representing the respondent-vacate stay petitioner. At the request of the counsel on record the writ petition itself is being disposed of finally. 3. It is stated that the first petitioner company had obtained working capital with a limit of Rs.33.00 lakhs from the respondent bank in the year 1992 and since then the petitioner company was regular in payment of the amounts to the Bank. Further it is stated that in the month of March 2007 the Director of Drugs had issued stop production orders vide orders dated 23.3.2007 and due to the said orders the petitioner company was unable to run the business and consequently the petitioner company had committed default in payment of interest for a period of three months amounting to Rs.91,174-64. The respondent bank issued a notice under Section 13 (2) of Securitization & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter in short referred to as ‘the Act’ for the purpose of convenience) dated 17.9.2007 to the first petitioner company recalling the entire working capital amount of Rs.33.00 lakhs plus interest of Rs.91,174-64 applied up to 31.8.2007. 4. It is also averred that the petitioner company could not pay the interest component only for the reason that the Government had issued stop production order and it was not intentional. The stop production order was issued on the allegation that particular norms were not being followed by the first petitioner company and now the petitioners rectified the said procedure and the Government after being satisfied had revoked the stop production order on 12.12.2007. In response to the said notice, the first petitioner company had submitted a representation on 17.11.2007, but the respondent bank, without passing any order on the said representation, issued another notice to the first petitioner company titling as a notice under Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 which shows the symbolic possession of the property mortgaged to the bank was taken on 01.12.2007. Surprisingly, the bank published Rule 8 Notice in Eenadu dated 04.12.2007 which shows that the possession would be taken on 19.12.2007. Rule 8 stipulates that the notice issued to the borrower and published in the newspaper should contain the same particulars. 5. It is also averred that the respondent bank is bound to follow the procedure mandated under Rule 8 strictly. No notice under Rule 8 had been issued separately to others. The notice was issued only to the first petitioner company and basing on the notice issued to the first petitioner company only the respondent bank does not have any right to take possession of the property of the guarantors. Therefore, the action of the respondent bank in issuing Sec.13 (2) notice and thereafter issuing contradictory notices under Rule 8 is illegal, arbitrary and contrary to the Act and Rules made thereunder. 6. Since the Government had revoked the stop production order by the order dated 12.12.2007, the petitioners again started the production work and a muhurtam had been fixed on 20.12.2007 at about 11.15 a.m. If the first petitioner company is allowed to proceed with the operations, the interest component would be cleared and the account would be regularized. 7. In the counter-affidavit filed by the respondent it is stated that the writ petition is not maintainable since the petitioners are having an alternative remedy of appeal under Section 17 of the Act. Further it is stated that it is true that the first petitioner was sanctioned a cash credit loan up to the limit of Rs.33.00 lakhs for working capital requirements and the said loan was secured by way of hypothecation of stocks in trade, raw materials and against the personal guarantees of the other guarantors as well as mortgage of properties belonging to the company and other guarantors. It is not true that the petitioner company can draw the amount of Rs.33.00 lakhs and the bank would be charging the interest on the amount drawn from the account. In fact, the nature of facility under the working capital limits sanctioned for the purpose of purchasing the raw materials and also for the purpose of stock in trade for the business activity of the petitioner company. Out of the loan limit of Rs.33.00 lakhs the first petitioner shall maintain stocks of finished, semi-finished and/or of raw materials to the worth of Rs.33.00 lakhs as sanctioned by the respondent bank and the petitioner company shall route all the sale proceeds through the loan account only. Any deviation itself constitutes financial irregularity and against the terms of sanction. It is also not true that the facility that can be availed and utilized for the purpose of business to an extent of Rs.33.00 lakhs and the bank is entitled for the interest thereon. Further it is stated that this respondent never informed about the stop production orders of the Government in the month of March 2007. The allegation that the interest for the period of 3 months therefrom amounting to Rs.91,174-64 is false and incorrect. Even as on 19.2.2007, there was an irregular outstanding amount of Rs.32,99,923/- and interest thereon and therefore the respondent bank also issued notice dated 19.02.2007 demanding the same. It is also averred that in subsequent visit on 17.5.2007 when it was observed that there was no stocks in the go down sufficiently to cover the outstanding and there was no activity and any sale proceeds were not routed through loan account, the respondent bank also issued notice dated 16.5.2007 apart from the other notice dated 18.6.2007. Since the financial irregularities in operating the account as well as the account becomes non-performing asset as per the Reserve Bank of India guidelines in terms of the powers conferred under the Act, the respondent had issued notice dated 17.9.2007 under Section 13 (2) of the Act demanding the payment of outstanding within 60 days. Even before issuing the said notice under the Act, the respondent bank also got issued legal notice dated 27.8.2007 calling upon the petitioners to pay the outstanding amount. Further, it is not only for the interest component of months from April to August 2007 and in terms of the sanction of cash credit loan the entire amount is liable to be payable when the petitioners did not sufficiently had the stocks in trade of raw materials, finished or semi-finished goods. The respondent was not aware of the said allegations made in para 5 and there was no intimation or even there was no activity in the first petitioner company till date and no stocks were available to meet the outstanding liability. Further it is stated that it is true that in reply to the notice, the first petitioner wrote a letter with assurance to pay the loan amount by Friday or Saturday in full or part. The said letter dated 17.11.2007 is not a representation or any objection for action initiated under the Act, therefore, it would not warrant any reply as alleged by the petitioners 8. In reply to para 7 it is averred in para 10 of the counter- affidavit that as prescribed under the rules the respondent bank issued possession notice in both Eenadu and Hindu daily newspapers on 04.12.2007, however, as the date was inadvertently mentioned as 19.12.2007 instead of 01.12.2007, the same was got rectified and subsequently published on 11.12.2007 and also a corrigendum in Hindu. The said date was a typographical error. The possession notice is sufficient and there is no illegality or any procedural deviations in taking the possession of the property as per the rules. It is also averred that the respondent bank had strictly followed the procedure as prescribed under the Act and there was no procedural lapses or irregularities or illegality in initiating the said proceedings. The further allegation that the respondent bank had not issued notice to all the other guarantors are also false and since the publication was also issued, the possession notice and issuance of said publication itself is a notice to one and all and therefore the allegations of the petitioners are all false and incorrect and subsequent action thereunder in terms of 13 (4) of the Act are very much under law which cannot be challenged by the petitioners by way of writ petition, as the petitioners have alternative remedy of appeal to Debt Recovery Tribunal under the Act. 9. Further it is stated that even till today the petitioners have not yet commenced any production activity or maintain stocks equivalent to the outstanding amount and moreover even did not deposit any part of amount as directed by this Court by its order dated 18.12.2007. The total amount itself is irregular and over drawn and the petitioners are not maintaining the stocks equivalent to the outstanding amount. Even to avail and continue the said credit facility, the petitioners have to discharge the total outstanding amount with the respondent bank and therefore mere paying the interest component would not sufficient to operate the account. 10. It is no doubt true that the petitioners are having a remedy as averred in the counter-affidavit. But in the light of the facts and circumstances and also the specific averment made in relation to revocation of stop production order on 12.12.2007 and the specific stand taken that as on today sufficient stocks are available, let the respondent inspect and verify whether the stand taken by the writ petitioners in this regard is a bona fide one or not and consider the case of the writ petitioners in this regard and take appropriate decision. 11. Accordingly, the writ petition is disposed of. No order as to costs. ____________________ (P.S. NARAYANA, J) Date: February 28, 2008. BSB ..... REGISTRAR // TRUE COPY // SECTION OFFICER To 1.2CCs to 2.2CD copies Form-NIC-OGS/WP{SPJS}