IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 19.12.2007 CORAM: The HONOURABLE MR.JUSTICE V. DHANAPALAN W.P.No.19445 of 2007 B.Shanmugam ... Petitioner vs. Union Bank of India, Nungambakkam Branch, No.37, College Road, Chennai 600 006. ... Respondent Writ Petition filed under Article 226 of the Constitution of India praying for the issuance of a writ of mandamus, forbearing the respondent from proceeding under section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, without honouring the petitioner's One Time Settlement (OTS) offer accepted by the respondent through the letter dated 29.01.2007, in furtherance of which the petitioner effected the payment of Rs.7.5 Lacs demanded by the respondent, on 13.03.2007 and 29.05.2007. For Petitioner : Mr.K.M.Vijayan, Senior Counsel for M/s.Ahmad Associates For Respondent : Mr.N.V.Srinivasan for M/s.N.V.S.Associates O R D E R With the consent of the learned counsel on either side, this writ petition is taken up for final disposal. 2. The case of the petitioner in a nutshell, is as under: (i) The respondent Bank extended loan facility to the core of Rs.3,00,000/- to a partnership firm, namely, "Adworld", in which the petitioner herein is also a partner. The accounts of their subsequently started partnership firm, namely, "Karvin Corporation" was also operated with the respondent Bank. (ii) While the outstanding of M/s.Adworld as on 10.10.1997 was arrived at Rs.20,35,000/-, a sum of Rs.3,37,660/- was repaid and the remaining due was Rs.17,83,578/-. Thereafter, the said https://hcservices.ecourts.gov.in/hcservices/ remaining due was remitted by effecting a total payment of Rs.17,85,000/- on 17.05.1999 through the sale of a property, which was already mortgaged with the respondent Bank. Even after remitting the balance amount, the respondent Bank arbitrarily adjusted a sum of Rs.5,00,000/- towards penal interest. (iii) This being the position, in the year 2002, the respondent Bank filed O.A.No.118 of 2002 in DRT-I against the two firms, the partners and guarantors for a total claim of Rs.1,03,86,184.78 paise, inclusive of interest up to 08.03.2002. The property which was already sold was also wrongly included as 'B' Schedule property in the said O.A.No.118 of 2002 and the same was amended in an application filed by the respondent Bank in I.A.No.159 of 2003 vide order dated 10.03.2005. (iv) In a meeting that took place among the borrowers and the respondent Bank on 10.11.2006, an OTS offer was made and a sum of Rs.30,00,000/- was insisted to be paid by the respondent Bank towards OTS, and though the petitioner expressed his willingness to pay Rs.30,00,000/- as OTS before 10.03.2007, the respondent Bank demanded 25% of the offer amount as down payment. Subsequently thereto, the borrower arranged the repayment of Rs.5,00,000/- and in the accompanying covering letter dated 13.03.2007, promised to pay the remaining amount of Rs.25,00,000/- towards full and final settlement by 31.03.2007. Despite the balance down payment of Rs.2.5 lakhs being made by the petitioner on 29.05.2007 through Registered Post, the respondent Bank contemplated further action based on the notice dated 02.01.2007 issued under Section 13(2) of the SARFAESI Act. (v) Since the respondent Bank initiated steps against him in contravention of Section 13(3A) of the SARFAESI Act, after having failed to communicate within one week of the receipt of the representation dated 13.03.2007, the petitioner has now approached this Court for an efficacious remedy. 3. In the counter affidavit, the respondent Bank has negated the averments of the petitioner and has stated as under: (i) The petitioner is one of the partners of M/s.Adworld, a partnership firm carrying on business in Chennai and also a partner in M/s.Karvin Corporation, another firm started by him along with other partners. Both the firms are represented by the petitioner and other partners. M/s.Adworld is engaged in advertising business and M/s.Karvin Corporation is engaged in the export of granite and slate materials. In the year 1988, both the firms approached the respondent bank for certain credit facilities to support their business and the respondent bank considered and granted secured overdraft facility to https://hcservices.ecourts.gov.in/hcservices/ M/s.Adworld and the partners of M/s.Adworld executed the required loan documents and as per the terms and conditions of the loan documents, they undertook to pay interest at the rate of 15.75% per annum compounded with quarterly rests. In turn, the firms have mortgaged their immovable assets. As they failed to clear the outstanding dues, the respondent bank initiated proceedings and filed an Original Application in O.A. No.118 of 2002 before the Debts Recovery Tribunal - I claiming a sum of Rs.17,26,637.44 with further interest at 15.75% p.a. compounded with quarterly rests from the date of filing the suit, i.e. 08.03.2002 till the date of realisation of the debt along with the cost of the suit. (ii) Similarly, in respect of M/s.Karvin Corporation, the respondent has claimed a sum of Rs.86,59,547.34 with interest at the rate of 17.75% per annum with quarterly rests in respect of packing credit, foreign bill purchase limit and over drawings in the current account and initiated proceedings by filing an Original Application on 08.03.2002. Thus, the total amount from both the firms as on 08.03.2002 was Rs.1,03,86,184.78 with further interest. That being the position, the bank omitted to mention about the sale of property described in Schedule B to the O.A. No.118 of 2002. The sale was done by the partners with the approval of the bank and the credit received was properly accounted for by the bank and the O.A. was filed for the outstanding amount as on 08.03.2002. (iii) the allegations of the petitioner that the respondent Bank arbitrarily adjusted a sum of Rs.5,00,000/- towards penal interest and further made a wrong debit of Rs.5,00,000/- are not true. (iv) there was no commitment on the part of the Bank to accept the petitioner's proposal and that by remitting a sum of Rs.7,50,000/-, the petitioner has unilaterally claimed that the amount remitted by him was towards a full and final settlement of their loans in respect of the two partnership firms. (v) there was no commitment on the part of the Bank to accept Rs.30,00,000/- offered by the petitioner in full and final settlement of the loan accounts and the Bank has sent a letter stating that their improved offer of Rs.33,00,000/- was also not accepted by the Competent Authority as per their letter dated 02.06.2007 sent by Registered Post Ack. Due. (vi) the matter has to be argued before the DRT, when the O.A. is taken up for trial and that it is true that the guarantors have raised objections regarding the sale of the property described in 'B' Schedule to the O.A.118 of 2002. https://hcservices.ecourts.gov.in/hcservices/ (vii) that there was no commitment on the part of the Bank to offer to receive only Rs.30 lakhs of the dues, when the liability even as per Section 13(2) notice dated 02.01.2007 was more than Rs.1,84,00,000/-. (viii) the issuance of notice dated 02.01.2007 under Section 13(2) of the SARFAESI Act is in contravention of Section 13(3A) of the SARFAESI Act. (ix) the Bank is given the statutory right to proceed against the secured assets when the loan becomes a Non Performing Asset (NPA). According to the respondent Bank, the petitioner and the borrowers are intentional defaulters and they are adopting delaying tactics to prevent the Bank from recovering the legitimate dues and hence, prayed for dismissal of the writ petition. 4. Heard Mr.K.M.Vijayan, learned Senior Counsel for the petitioner and Mr.N.V.Srinivasan, learned Counsel appearing on behalf of the respondent Bank. 5. Learned Senior Counsel for the petitioner contended that so far as the petitioner has satisfied the requirement of the respondent Bank by paying the down payment of 25% of the agreed OTS amount, the respondent Bank cannot approbate and reprobate on their exercise of power under Section 13 of the SARFAESI Act. It was his further contention that the respondent Bank has violated Section 13(3A) of the SARFAESI Act, by failing to communicate within one week of the receipt of the petitioner's representation dated 13.03.2007. 6. Learned Senior Counsel further contended that there is a statutory duty contemplated under Section 13(3A) of the SARFAESI Act, which has not been followed by the respondent Bank; therefore, the petitioner has a judicial remedy before this Court to enforce the right as it is statutorily provided. He submitted that the certificate of posting has been sent only on 21.06.2007 and it is not on 02.06.2007 as contended by the respondent. Therefore, there is no compliance of the provision under 13 (3A) of the Act. 7. Learned counsel further contended that as per Section 34 of the SARFAESI Act, a Civil Court does not have jurisdiction in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under the Act to determine in respect of any action taken or to be taken in pursuance of any power conferred by or under the Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. It is also his contention that as per Section 35, the provisions of the Act override other laws and therefore, the statutory rights provided under this Act under Section 13(3-A) have to be enforced only before this https://hcservices.ecourts.gov.in/hcservices/ Court and not before any other forum and the petitioner has got every right to agitate the same before this Court and therefore, the respondent has violated its statutory duty. 8. In support of his contentions, learned counsel for the petitioner has placed reliance on : (i) a decision of this Court reported in 2007 (4) MLJ 245 in the case of Misons Leather Ltd., rep. by its Managing Director vs. Canara Bank, Chennai, the relevant portion reads, as under: "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." (ii) yet another decision of this Court reported in 2007(2) CTC 397 in the case of Industrial Development Bank of India Ltd., Chennai - 15 vs. Kamaldeep Synthetics Ltd., Chennai, the relevant portion reads as follows: "8. In Mardia Chemicals case, the Supreme Court held that under Section 13(2) of the SARFAESI Act, it is incumbent upon the secured creditor to serve sixty days notice before proceeding to take action under sub-section (4) of Section 13 of the SARFAESI Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief that may be, must be communicated to the borrower. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the DRT under Section 17 of the SARFAESI Act, at that stage. The Court explained that communication of reasons not to accept the objections of the borrower is for the purpose of his knowledge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured https://hcservices.ecourts.gov.in/hcservices/ creditor, who intends to resort to harsh steps of taking over the management/business of namely, the secured assets without intervention of the Court. Such person in respect of whom steps under Section 13(4) of the SARFAESI Act are likely to be taken cannot be denied the right to know the reason for non-acceptance of his objections. This will be in keeping with the concept of right to know the lender's liability of fairness to keep the borrower informed particularly of the developments before taking measures under sub-section (4) of Section 13 of the SARFAESI Act. The Court, however, made it clear that as per the provisions of the SARFAESI Act, the borrower will not be entitled to challenge the reasons communicated or the likely action of the secured creditor at the stage of communication of reasons, unless his right to approach the DRT as provided under Section 17 of the SARFAESI Act matures on any measure having been taken under sub-section (4) of Section 13 of the SARFAESI Act. 9. The Proviso to sub-section (3-A) of Section 13 of the SARFAESI Act makes it abundantly clear that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the DRT under Section 17 of the Court of District Judge under Section 17-A of the Act. Thus, the basic object of sub-section (3-A) of Section 13 of the SARFAESI Act is to ensure the element of transparency and fair play in the implementation of the provisions of the SARFAESI Act. Learned counsel for the respondent is unable to demonstrate prejudice or loss that is likely to be caused to the respondent by reason of the possession notice given to it, earlier to the communication of the reasons for non-acceptance of the objections raised by the borrower. In our opinion, at the most, it would amount to a mere irregularity and having regard to the facts and circumstances of the case, we are satisfied that the appellant-bank has substantially complied with the provisions of Section 13(3-A) of the SARFAESI Act." 9. Mr. N.V. Srinivasan, learned counsel for the respondent bank, at the outset, contended that the writ petition is not maintainable in view of the settled proposition laid down by the Supreme Court as well as this Court. He has strongly contended that in the absence of any pleading in respect of Section 13(3-A) of the SARFAESI Act, whether such a plea can be considered when there is a reply under Section 13(3-A) of the Act. Learned counsel further contended that on receipt of the notice, the petitioner as well as the other guarantors/mortgagors did not respond to the notice and as the stipulated period of 60 days is already over, the respondent Bank is empowered to issue possession notice under Section 13(4) of the SARFAESI Act, 2002 and take appropriate steps. According to the learned counsel, when there is alternative remedy of approaching the Debts Recovery Tribunal as per the provisions of Section 17 of the SARFAESI Act https://hcservices.ecourts.gov.in/hcservices/ 2002, the petitioner ought not to have approached this Court and therefore, he prayed for dismissal of the writ petition. 10. Learned counsel for the respondent also assailed the argument advanced by the learned Senior Counsel appearing for the petitioner that there is no question of invoking the Civil Court's jurisdiction under Section 34 of the Act and also the over-riding effect under Section 35 of the Act as the proceedings initiated under Section 13(2) have already been proceeded with against the petitioner and the same are pending. Lastly, he submitted that all the provisions contemplated under the Act have been scrupulously followed by the respondent bank; notices were issued under Section 13(2), 13(3-A) and also 13(4) of the Act and therefore, the scope of prayer cannot be granted without any pleading or specific averment as the petitioner has not established his legal right and he can very well contest the matter before the Debts Recovery Tribunal. 11. In support of his contentions, learned counsel for the respondent Bank has placed reliance on the following decisions : (i) The Supreme Court, in a decision reported in AIR 2004 SC 2371 in the case of Mardia Chemicals Ltd. etc. vs. Union of India (UOI) and others etc. has held as under: 40. Now coming to Section 17, it provides for filing of an appeal to the Debt Recovery Tribunal within 45 days of any action taken against the borrower under sub-section (4) Section 13 of the Act. It reads as under: "17. Right to appeal: (1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorized officer under this Chapter, may prefer an appeal to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken. (2) Where an appeal is preferred by a borrower, such appeal shall not be entertained by the Debts Recovery Tribunal unless the borrower has deposited with the Debts Recovery Tribunal seventy-five per cent of the amount claimed in the notice referred to in sub-section (2) of section 13: Provided that the Debts Recovery Tribunal may, for reasons to be recorded in writing, waive or reduce the amount to be deposited under this section. (3) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the https://hcservices.ecourts.gov.in/hcservices/ Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made thereunder." It is thus clear that an appeal under sub-section (1) of Section 17 would lie only after some measure has been taken under sub-section (4) of Section 13 and not before the stage of taking of any such measure. According to sub-section (2), the borrower has to deposit 75% of the amount claimed by the secured creditor before his appeal can be entertained. 41. So far jurisdiction of Civil Court is concerned we find that there is a bar to it as provided under Section 34 of the Act quoted below : "34. Civil Court not to have jurisdiction – No Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)". 50. It has also been submitted that an appeal is entertainable before the Debt Recovery Tribunal only after such measures as provided in sub-section (4) of Section 13 are taken and Section 34 bars to entertain any proceeding in respect of a matter which the Debt Recovery Tribunal or the appellate Tribunal is empowered to determine. Thus before any action or measure is taken under sub-section (4) of Section 13, it is submitted by Mr.Salve one of the counsel for respondents that there would be no bar to approach the civil court. Therefore, it cannot be said no remedy is available to the borrowers. We, however, find that this contention as advanced by Shri Salve is not correct. A full reading of section 34 shows that the jurisdiction of the civil court is barred in respect of matters which a Debt Recovery Tribunal or appellate Tribunal is empowered to determine in respect of any action taken "or to be taken in pursuance of any power conferred under this Act". That is to say the prohibition covers even matters which can be taken cognizance of by the Debts Recovery Tribunal though no measure in that direction has so far been taken under sub-section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the civil court shall have no jurisdiction to entertain any proceeding thereof. https://hcservices.ecourts.gov.in/hcservices/ The bar of civil court thus applies to all such matter which may be taken cognizance of by the Debt Recovery Tribunal, apart from those matters in which measures have already been taken under sub-section (4) of Section 13. 80. Under the Act in consideration, we find that before taking action a notice of 60 days is required to be given and after the measures under Section 13(4) of the Act have been taken, a mechanism has been provided under Section 17 of the Act to approach the Debt Recovery Tribunal. The above noted provisions are for the purposes of giving some reasonable protection to the borrower. Viewing the matter in the above perspective, we find what emerges from different provisions of the Act, is as follows: 1. Under sub-section (2) of Section 13 it is incumbent upon the secured creditor to serve 60 days notice before proceeding to take any of the measures provided under sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. 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 Debt Recovery Tribunal under Section 17 of the Act, at that Stage. 2. As already discussed earlier, on measures having been taken under sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before the Debts Recovery Tribunal. 3. That the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition as it may deem fit and proper to impose. 4. In view of the discussion already held on this behalf, we find that the requirement of deposit of 75% of amount claimed before entertaining an (petition) under Section 17 of the Act is an oppressive, onerous and arbitrary condition against all the canons of reasonableness. Such a condition is invalid and it is liable to be struck down. https://hcservices.ecourts.gov.in/hcservices/ 5. As discussed earlier in this judgment, we find that it will be open to maintain a civil suit in civil court, within the narrow scope and on the limited grounds on which they are permissible, in the matters relating to an English mortgage enforceable without intervention of the Court." (ii) In 2005 (1) LW 58 in the case of TIIC vs. Millenium Business Solutions Pvt. Ltd., this Court has held as under: "5. It is alleged that the petitioner came forward to raise funds by disposing of the properties offered as collateral securities and its Managing Director presented a proposal to TIIC for one time settlement. The petitioner further alleged that it offered a proposal to pay Rs.2 crores against the release of all the collateral securities, and was awaiting for the approval and confirmation from TIIC. The petitioner also alleged that this proposal of one time settlement of Rs.2 crores against the release of collateral properties has not been considered by the TIIC till date. The petitioner prayed for rescheduling of the repayment of the loan and interest. 8. No doubt Article 226 on its plain language states that a writ can be used