IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 14.07.2008 CORAM THE HONOURABLE Mr. JUSTICE K.VENKATARAMAN Writ Petition No.37480 of 2007 and M.P.No.1 of 2007 and M.P.No.1 of 2008 Irene Isabella ... Petitioner Vs. 1.The Authorised Officer, State Bank of India, Udagamandalam Branch, Commissioner Road, Nilgiris. 2.State Bank of India, rep. by its Manager, Udagamandalam Branch, Commissioner Road, Nilgiris. ... Respondents Writ petition has been filed under Article 226 of The Constitution of India to issue a Writ of Declaration declaring the possession notice dated 22.08.2007 and the sale notice published on 17.11.2007 in the daily Indian Express on the file of the first respondent as ultra vires, unconstitutional and illegal. For Petitioner : Mr.T.R.Rajagopalan, Senior Counsel, for Mrs.Ananda Gomathi Sivakumar For Respondents : Mr.K.Sankaran, for R.2 O R D E R The present writ petition has been filed for declaration declaring the possession notice dated 22.08.2007 and the sale notice published on 17.11.2007 in the daily Indian Express on the file of the first respondent is ultra vires, unconstitutional and illegal. https://hcservices.ecourts.gov.in/hcservices/ 2. The case of the petitioner in nutshell is set out here under:- (a) The petitioner stood as a guarantor for the facilities availed by one M/s.Hotel Sri Navayuga and she has also mortgaged her property as a collateral security towards the loan availed by the said borrower. However, as the account had turned to NPA, the first respondent had issued a demand notice dated 09.07.2003 under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (herein after referred to as SARFAESI Act). Subsequent to the said notice, the respondent Bank had filed a suit in O.S.No.108 of 2004 on the file of the learned District Judge, Nilgiris. A preliminary decree was passed in the said suit on 16.11.2005 directing the petitioner to pay the decretal amount with interest. (b) Much later to the issuance of the demand notice, under Section 13 (2) of the SARFAESI Act, the first respondent suddenly proceeded to take possession of the property on 22.08.2007 and further chose to bring the property for sale, by sale notice published in India Express daily dated 17.11.2007 giving a go by to the preliminary decree obtained by the Bank. The action of the respondent bank in proceeding under the SARFAESI Act after obtaining the preliminary decree is per se illegal. There cannot be two parallel action after the suit is disposed of. Hence, the writ petition had been filed challenging the possession notice and the sale notice. 3. Counter affidavit had been filed on behalf of the respondents, wherein the following facts have been set out:- (a) The petitioner created equitable mortgage for the payment of the loan availed by one M/s. Hotel Sri Navayuga. Since default had been committed by the borrower, after issuance of notice, a suit has been filed before the learned District Judge of Nilgiris, in O.S.No.108 of 2004 praying for sale of the mortgaged property and for recovery of the amount due. The suit was decreed after contest on 16.11.2005 by passing a preliminary decree. The petitioner failed to repay the decretal amount within the time granted by the learned District Judge, Nilgiris. (b) In view of the inordinate delay in recovering the outstanding amount and having regard to the public interest, the Bank issued a notice on 09.07.2003 under Section 13 (2) of the SARFAESI Act, calling upon the petitioner, the guarantor and the borrower to repay the amount due. The petitioner did not make any objection even though she has acknowledged the notice and hence, the Bank took steps under Section 13 (4) of the SARFAESI Act. Now the Bank issued sale cum tender notice by effecting publication. The contention of the petitioner that since the Bank https://hcservices.ecourts.gov.in/hcservices/ had obtained preliminary decree, it is precluded from taking action under the SARFAESI Act, is without any merit. Section 37 of the SARFAESI Act would point out that the provisions of the SARFAESI Act are not in derogation of any other law for the time being in force. (c) The power of the Bank to take charge of the secured assets and sell the same for realising the dues is not in any way affected by the preliminary decree obtained by the Bank. The outstanding arrears still remain in the books of the Bank as NPA and hence, the proceedings initiated under the SARFAESI Act cannot be said to be violative of any Act or Rules. Further, the SARFAESI Act provides an alternative remedy by filing an appeal under Section 17 of the said Act. Without exhausting the same, the petitioner cannot approach this Court by filing the present writ petition. 4. I have heard Mr.T.R.Rajagopalan, learned Senior Counsel appearing for the petitioner and Mr.K.Sankaran, learned counsel appearing for the respondents. 5. Learned Senior Counsel appearing for the petitioner mainly submitted that since the Bank had obtained a preliminary decree by filing the suit in O.S.No.108 of 2004 before the learned District Judge, Nilgiris, it is precluded from proceeding under the SARFAESI Act. On the other hand, the learned counsel appearing for the respondents would submit that the proceedings under the SARFAESI Act would nothing to do with the decree obtained in the Civil Court and there is no bar to proceed under SARFAESI Act. 6. Mr.T.R.Rajagopalan, learned Senior Counsel appearing for the petitioner while elaborating his arguments on the contention that the respondent Bank cannot proceed under the SARFAESI Act in view of the preliminary decree obtained by the Bank from the competent Civil Court, had taken me to several provisions of the SARFAESI Act. According to the learned Senior Counsel, Section 2 (zc) and Sections 13 (1) (2) and (4) of the SARFAESI Act refer about secured asset. Since the debt merged with a decree of a competent Civil Court, the decree has to be executed and the debt can no more be considered as a secured asset. Learned Senior Counsel further emphasised that the mortgage created in favour of the Bank is no more in existence since it has merged with the decree of the Civil Court. Learned Senior Counsel further submitted that the SARFAESI Act came into effect in the year 2002 and the decree has been obtained by the Bank in the year 2005 and now the respondent Bank cannot enforce the mortgage. https://hcservices.ecourts.gov.in/hcservices/ 7. However, I am unable to countenance the said argument of the learned Senior Counsel appearing for the petitioner for more than one reasons which are set out here under:- (A) Section 2 (g) of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993, defines what is debt. It includes the amount payable under a decree also. It is useful to extract Section 2 (g) of the said Act, which reads as follows:- " (g) "debt" means any liability (inclusive of interest) which is claimed 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 assigned, or whether payable under a decree or order of any civil Court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on the date of the application." Since the amount payable under a decree is also considered as debt, the submission of the learned Senior Counsel appearing for the petitioner that since the SARFAESI Act refers secured asset and the debt due to the Bank had merged with a decree, it can no longer be considered as a secured asset inviting an action under the SARFAESI Act is totally unacceptable. (B) Section 2 (j) of SARFAESI Act defines the defaulter and the same is extracted here under:- " (j) "default" means non-payment of any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified as non-performing asset in the books of account of the secured creditor." In view of the specific stand taken by the respondent bank in their counter that in the books of the Bank, the dues by the borrower have been classified as non-performing asset, the petitioner will have to be considered as a defaulter and nothing prevents the Bank from proceeding under the SARFAESI Act. (C) Section 37 of the SARFAESI Act would point out the provisions of the Act are not in derogation of any other law for the time being in force. Section 37 of the Act is usefully https://hcservices.ecourts.gov.in/hcservices/ extracted here under:- " The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of the Companies Act, 1956 (1 of 1956) the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force." Therefore, the power of the Bank in taking charge of the secured asset and selling the same for realisation of the secured asset is not in any way affected by the preliminary decree that has been obtained by the Bank. Thus, the SARFAESI Act protects and safeguards the interest of the secured creditors and the same is without prejudice to the provisions contained in any other Act. 8. Thus, looking at any angle, the action taken by the respondent Bank in issuing notice under Section 13 (2) or possession notice under Section 13 (4) of the SARFAESI Act and the further action cannot be termed to be illegal or invalid. 9. While upholding the constitutional validity of SARFAESI Act, the Hon'ble Apex Court in the case of Mardia Chemicals Limited v. Union of India – 2004 2 C.T.C. 759 has held that the provisions of the act are not ultra vires except Rule 17 (2) of the Act. It would be useful to extract paragraphs 81, 82 and 83 of the said judgment, which reads here under:- " 81. In view of the discussion held in the judgment and the findings and directions contained in the preceding paragraphs, we hold that the borrowers would get a reasonably fair deal and opportunity to get the matter adjudicated upon before the Debt Recovery Tribunal. The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned provisions of the Act cannot be said to be uuconstitutional in view of the fact that the object of the Act is to achieve speedier recovery of the dues declared as NPAs and better availability of capital liquidity and resources to help in growth of economy of the country and welfare of the people in general which would subserve the public interest. 82. We, therefore, subject to what is provided in paragraph 80 above, uphold the validity of the Act as its provisions except that of sub-section (2) of Section 17 of the Act, which is declared ultra vires of https://hcservices.ecourts.gov.in/hcservices/ Article 14 of the Constitution of India. 83. Before we part with the case, we would like to observe that where a secured creditor has taken action under Section 13 (4) of the Act, in such cases it would be open to borrowers to file appeals under Section 17 of the Act within the limitation as prescribed therefore, to be counted with effect from today." 10. Further, the petitioner could have availed the alternative remedy available under Section 17 of SARFAESI Act. In fact, the Full Bench of this Court reported in 2008 (2) CTC 529 – Lakshmi Shankar Mills (P) Ltd., v. The Authorised Officer / Chief Manager, Indian Bank, has held that the remedy of the person who challenges Section 13 (3) notice is only to avail the remedy available under Section 17 of the Act. Paragraphs 12, 20 and 21 of the said judgment are usefully re-produced here under:- " 12. On a plain reading of Section 17, it is seen that the Tribunal has wide powers to restore possession in favour of the borrower, if such action taken under sub-section (4) of Section 13 is declared invalid. Even where the property is sold or dealt with, pending hearing of the Application under Section 17, the Tribunal is not rendered powerless to restore possession in favour of the borrower, if such action taken under sub-section (4) of Section 13 is declared invalid. In such an eventuality, sub-section (3) of Section 17 gives ample powers to the Tribunal to direct restoration of the possession or restoration of management, as the case may be or to pass such other order, as it may consider proper and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of Section 13. 20. In Misons Leathers Ltd. Vs. Canara Bank, Chennai 2007(3) LW 500: 2007(4) MLJ 245, the constitutional validity of the amended Section 17 was challenged on the ground that the remedy of filing Application under Section 17 of the Act which is declared to be in the nature of the Suit by the Supreme Court is totally taken away by the amendment and in any event, the remedy is only an empty formality and does not protect the rights of the borrowers, mortgagors and guarantors. Repelling this contention, the Division Bench observed: https://hcservices.ecourts.gov.in/hcservices/ "10.We are afraid that the contention is totally mis-conceived. The provisions of Section 17(1) of the Act provides remedy for the borrower/guarantor/mortgagor to challenge the action of the Bank under Section 13(4) of the Act before the Debt Recovery Tribunal. The Debt Recovery Tribunal is required to decide whether the action of the Bank/Financial Institutions, under Section 13(4) is in accordance with the provisions of the Act and the rules framed thereunder. It is open to the borrower/guarantor/mortgagor to demonstrate before the Debt Recovery Tribunal that resort to Section 13 of the Act is not permissible by law. In a given case, the claim of the Bank/Financial Institutions may be barred by limitation or there may be cases, where the adjustment of the amount paid is not reflected in the notice or the calculation of interest may not be in accordance with the contract between the parties. Needless to say that all such grounds, which render the action of the Bank/Financial Institutions illegal can be raised in the proceedings under Section 17 of the Act before the Debt Recovery Tribunal. 11.Learned Additional Solicitor General and the learned counsel appearing for the Banks and Financial Institutions fairly stated that all the objections which can be legally raised in the reply to the notice under Section 13(2) of the Act can also be raised in the proceedings under Section 17(1) of the Act. It would be for the Debt Recovery Tribunal to decide in each case whether the action of the Bank is in accordance with the provisions of the Act and is legally sustainable." 21. As can be seen from the Statement of Objects and Reasons of the Securitisation Act, the main purpose of the Securitisation Act, and in particular Section 13 thereof, is to enable and empower the secured creditors to take possession of their securities and to deal with them without the intervention of the Court. Therefore, in an Application under Section 17, the Tribunal is concerned only with the validity of the acts of the secured creditor in taking possession of the securities and dealing with the same under Section 13. In our opinion, the Division Bench has rightly held that all such grounds, which would render the action of the Bank/Financial Institution illegal, can be raised before the Tribunal in the proceedings under Section 17. It is for the Tribunal to decide in each case https://hcservices.ecourts.gov.in/hcservices/ whether the action of the Bank was in accordance with the provisions of the Act and legally sustainable. However, we hasten to add that while considering the question of validity of the action of the Bank, it is not necessary for the Tribunal to adjudicate the exact amount due to the secured creditors. In other words, the purpose of an Application under Section 17 is not the determination of the quantum of claim per se as the Tribunal is concerned with the issue of the validity of the measures taken by the Banks/Financial Institutions under Section 13(4). In our opinion, the judgment of the Division Bench in Misons Leathers Ltd., lays down the law correctly and does not require any reconsideration." 11. Thus, considering the totality of the circumstances, I am of the considered view that the proceedings initiated by the respondent Bank by issuing possession notice and the subsequent sale notice are not ultra vires, unconstitutional or illegal. 12. In the result, the writ petition stands dismissed. However, there is no order as to costs. Consequently, connected petitions are closed. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar sbi To 1.The Authorised Officer, State Bank of India, Udagamandalam Branch, Commissioner Road, Nilgiris. https://hcservices.ecourts.gov.in/hcservices/ 2.The Manager,State Bank of India, Udagamandalam Branch, Commissioner Road, Nilgiris. +1cc to Mrs.Ananda Gomathi Sivakumar,Advocate Sr 37345 +1cc to Mr.K.Sankaran, Advocate Sr 37006 RL (CO) km/31.7. W.P.No.37480 of 2007 https://hcservices.ecourts.gov.in/hcservices/