«sBSi»!^ •f^^lW^^WS-;.- iri^nC^""ifniniBTi[ii!ninntinm[iiti •unnesas?—1fetiRTi"~-38^r—mi1f(I'"^'; S^^^.^^-p.f.-.saffv'-KBiiiysfliaMliKtsu HIGH COURT OF CHHATTISGARH : BILASPUR Writ Petition (C) No. 5928 of 2006 M/s Dauji Farms Limited & Others Versus AF/^ Dena Bank & Another Post for pronouncement of the judgment and order on j^l 1-2008 Sd/- Satish K. Agnihotri Judge Sr'- HIGH COURT OF CHHATTISGARH : BILASPUR PETITIONERS RESPONDENTS Writ Petition (C»No. 5928 of 2006 1. M/s Dauji Farms Limited, A company registered under the provisions of Companies Act, 1956 having its registered office at village Neora, Tahsil Tilda, District Raipur (CG). 2. Ashutosh Kumar Agrawat, S/o Late Shri K.L. Agrawal, aged about 42 years, R/o village Neora (Tilda), Post Neora, Tahsil Tilda, District Raipur (CG). 3. Arvind Kumar Agrawal, S/o o Late Shri K.L. Agrawal, aged about 41 years, R/o village Neora (Tilda), Post Neora, Tahsil Tilda, District Raipur (CG). Versus 1. Dena Bank, Branch at Titda, Post Neora, Tehsil Tilda, District Raipur (CG). 2. The Authorized Officer, Dena Bank, Regional Office, Rukmini Bhawan, Near Jai Ram Complex, Raipur (CG) 492 001. (Writ petition under Article 226/227 of the Constitution of India) Single Bench : Hon'ble Shri Satish K. Agnihotri, J Present: Shri Satish Agrawal with Shri Ankit Singhal, counsel for the petitioners. Shri Abhishek Sinha, counsel for the respondents. JUDGWtENT & ORDER (Passed on this _5_"clay of November, 2008) By this petition, the petitioners seek to chatlenge the validity and legality of the notice dated 28-7-2006 (Annexure-P/4) under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 {forshort "the SARFAESI Act"). Further chatlenge is to the reply dated 10-10-2006 (Annexure-P/6) to the legal notice of the petitioners and intimation-cum-letter demanding possession ofsecurities dated 23-10-2008 (Annexure-P/9). ^*; &>. ^ ''S^i..-<e?i£"^;t:-:.'?5.£.5^ '^. "%-.. "'*t-<s" ""•^—.^•.•s^'"' 2) The indisputable facts, in nutshell, as projected by the petitioners, are that the petitioner No.1 is a public limited company, engaged in the business of milling, sorting & trading of rice and retated products. Petitioners No.2 & 3 are the Directors of the petitioner No.1. According to the petitioners, the petitioner No.1 was altegedly given financial assets in the shape of packing credit hypothecation limit, foreign bill purchase limit, term loan and foreign letter bf credit limit. It was enhanced over the period of time. On 17-7-1997 the petitioners have credited mortgage of their immovable propertiessituated at Tilda and village Telibandha, District Raipur. For the alleged failure on the part of the petitioners to pay the aforesaid credit facilities, interest and other monies to the Bank, the petitioners were classified as Non Performing Asset (NPA). The respondent No.1 accordingly issued a notice dated 24-2-2005 (Annexure-P/1) under Section 13 (2) ofthe SARFAESI Act. . 3) The petitioners submitted their reply/representation dated 13-4-2005 (Annexure-P/2) to the above-stated notice issued by the respondents. The said reply was neither considered nor decided. In the meantime, the respondents initiated a recovery proceeding by filing original application No.94/2005 before the Debts Recovery Tribunal ».,Jabalpur (for short "the DRT"}, which is pending consideration and adjudication. The respondents issued a second demand notice dated 28-7-2006 (Annexure-P/4) under the provisions of Section 13 (2) of the SARFAESI Act. The petitioners submitted their reply to the said notice on 4-10-2006 (Annexure-P/5) raising an objection that two parallel proceedings cannot be initiated against the petitioners one before the DRT, which is pending consideration in original application No.94/2005 and secondly under the provisions of Section 13 of the SARFAESI Act. Thus, the subsequent notice dated 28-7-2006 was bad in law. .'^ 4) The respondents Bank sent a reply dated 10-10-2006 (Annexure-P/6) to the legal notice dated 4-10-2006 stating that the notice dated 24-2-2005 under Section 13 (2) of the SARFAESI Act shoutd be and ought to be treated as withdrawn and the legal notice was accordingly rejected. It was further observed that pursuant to the notice dated 28-7-2006 under Section 13 (2) of the SARFAESI Act to mate full payment as required by that notice, at the earliest. Thereafter, the petitioners made one more represehtation dated 16-10-2006 (Annexure-P/7) that no steps be taken in view of the decision of the t-ligh Court of Punjab & Haryana in the matter of M/s Katyani Sales Company v. Union of India wherein it was held that twp proceedings cannot go on togetber. It was further informed that the matter was pending consideration before the Hon'ble Supreme Court with regard to the question of law as to whether two parallel proceedings under the provisions of Recovery of Debts due to Banks and Financial Institutions Act, 1993 (for short "the Act, 1993") and the SARFAESI Act can go on together or not. The respondents Bank sent a reply on 23-10-2006 (Annexure-P/9) to the representation of the petitioners dated 16-10-2006 informing the petitioners that the Bank authorities would take possession of the properties/assets charged to the Bank on 13-11-2006. The petitioners were further restrained from transferring the secured properties by way of sale, lease or otherwise any of the assets hypothecated/mortgaged to the Bank. Being aggrieved, the petitioners have preferred the instant writ petition impugning the demand notice/ ordere as afore-stated. 5) This Court after hearing learned counsel for the petitioners, granted interim order as prayed in M.(W.).P.No.4437/2006 by order dated ^fy"^ ^,s& Ei, ,[ ^.i -~-^ r^•I II ^N i-al % 8-11-2006. The prayer clause of M.(W.).P.No.4437/2006 reads as under: ".....it is prayed that the Hon'bte Court may kindly be pleased to stay the effect and operation of demand notice dated 28-7-2006 and orders dated 10-10-2006 and 23-10-2006 till the final disposal of the writ petition......." 6) Shri Satish Agrawal, learned counsel appearing on behalf of the petitioners, would submit that by virtue of provisions contained in Sectibn 13 (1) of the SARFAESI Act, provisions of Sections 69 & 69A of the Transfer of Property Act, 1882 (forshort "the TPA") have no application to enforce security interest created in favour of the secured creditor without intervention of the Court. Thus, recovery proceeding under the provisions of the SARFAESI Act is to be initiated by authorized officer of a secured creditor without intervention of the Court. Demand notice under Section 13 (2) of the SARFAESI Act is not a mere show cause notice, but the same amounts to initiating the recovery proceedings under the provisions oftheSARFAESIAct. 7) Shri Agrawal would further submit that as per the provisions of Section 13 (3A) ofthe SARFAESI Act, the authorized officer is required to decide the representation or objection raised by the borrower, who is under demand. In the event, if the representation or objection is not acceptable, the rejection is required to be communicated, but in the event if the same is accepted there is no obligation upon the authorized officer to communicate the acceptance. In the present case, no communication has been sent to the petitioners about the rejection of the representation dated 13-4-2005 submitted by them to demand notice dated 24-2-2005. Since the representation dated 13-4-2005 submitted by the petitioners to the demand notice dated 24-2-2005 was accepted by the respondent Bank, it resorted to recovery of alleged dues by filing recovery application before iat 'tfc. a S %l5:®%8» w ^ ^..vy s--- the DRT in O.A. No.94/2005. Once the remedy of recovery provided under the provisions of the SARFAESI Act has been availed, the respondent Bank cannot re-initiate the recovery proceeding afresh by issuing second notice under Section 13 (2) of the SARFAESI Act. It was further submitted that admittedly respondent No.2 had initiated recovery proceeding by demand notice dated 24-2-2005 under Section 13 (2) ofthe SARFAESI Act, which has been admitted to have been withdrawn without any liberty to revive the same. It is not permissible to the respondent No.2 to initiate recovery proceeding under the SARFAESI Act again. The powers under the SARFAESI Act against a borrower can be exercised only once whereas this issue is in addition to the issue of parallel proceeding, therefore, the same cannot be sustainable. 8) Per contra, Shri Abhishek Sinha, learned counsel appearing on behalf of the respondents, would submit that the action taken by the respondents/Bank against the petitioners under Section 13 (4) of the SARFAESI Act is appealable under the provisions of Section 17 of the SARFAESI Act and in view of the said statutory alternative remedy, the present petition is not maintainable. 9) Shri Sinha would further submit that by issuing second notice under Section 13 (2) of the SARFAESI Act, no prejudice has been caused to the petitioners and on the contrary, the petitioners have been afforded extra opportunity to show cause asto why measures under Section 13 (4) of the SARFAESI Act should not be taken. The Act confers independent and parallel powers on the Banks and Financial Institutions to realize long term assets, manage problems of liquidity, asset liability and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. The SARFAESI Act has been enacted in the larger public ^ 9 -isSSS&a^ ! t: '7::^^s^li. i' ^ "-.• .':" .':" '':\ %?'-f;':l ./ interest and for the economic growth of the country. There is no time period prescribed under chapter-111 of the SARFAESI Act for taking measures under Section 13 (2) of the SARFAESI Act. In case, the borrower fails to discharge his liability in full, then the period prescribed in sub-section (2) of Section 13 of the SARFAESI Act i.e. 60 days, the secured creditor may take recourse to one or more of the measures as contemplated under the provisions of sub-section (4) of Section 13 of the SARFAESI Act, but no prohibition/restriction has been prescribed under chapter-111 beyond which the bank/secured creditor would be restrained from invoking the provisions of Chapter-111 of the SARFAESI Act. The respondents Bank have not acquiesced or waived their rights to invoke the provisions of the SARFAESI Act on the ground that the decision taken on the representation has not been communicated to the petitioners withina period of one week as contemplated under Section 13 (3A) of the SARFAESI Act. Non-compliance of the procedural requirements would not be fatal unless the relevant statute or rule, so mandates, and especially when no prejudice has caused. Since there is no provision in the SARFAESI Act, which may attract civil consequence by non-compliance of Section 13 (3) of the SARFAESI Act and there is no prejudice caused to the petitioners by the second show cause notice/demand notice, the theory of 'useless formality' can be applied. 10) I have heard learned counsel appearing for the parties, perused the pleadings and the documents appended thereto. 11) Shri Agrawal, learned counsel for the petitioners, would submit that the petitioners do not want to press the ground taken in the petition to the effect that once recovery proceeding is pending before the DRT, the respondents Bank cannot proceed under the provisions of the SARFAESI Act, in the light of the decision of the Hon'ble Supreme Court in the matter K K frl 'ii.il ¥- 7 of M/s Transcore vs. Union of India & Anr. , wherein Their Lordships held that withdrawal of the original application pending before the DRT under the DRT Act is not a pre-condition for taking recourse to 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. 12) In order to appreciate the point raised for consideration by this Court, it is necessary to quote the provisions of Section 13 (1) of the SARFAESI Act. "13, Enforcement of security interest.—(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act." Provisions of Section 13 (1) of the SARFAESI Act supports with the word "Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882)......" makes it clear that a non obstante clause which gives overriding effect over the provision of Act mentioned in the non obstante clause in case of conflict. (See Orient Paper and Industries Ltd. and another vs. State of Orissa and others P-12). 13) The Hon'ble Supreme Court in the matter of Union of India and another vs. G.M. Kokil and others , while considering non obstante clause incorporated in Section 70 of the Bombay Shops and Establishments Act, 1948 held that it is well-known that a non obstante ctause is a legislative device which is usually employed to give overriding effect to certain provisions over some contrary provisions that may be 1 2006(12) SCALE 21991 Supp(1)SCC81 31984(Supp)SCC196 ./f' 8 ^, ^^..y/ v.'i^y ^s.-^ 1 ^ found either in the same enactment or some other enactment, that is to say, to avoid the operation and effect of all contrary provisions. 14) The above stated ratio was referred to with approval by the Supreme Court in the matter of Shin-Etsu Chemical Co. Ltd. vs. Aksh Optifibre Ltd. and another . 15) The SARFAESI Act is a special Act as held by the Hon'ble Supreme Court in the matter of Transcore (supra). Para 48 of the judgment reads as under: "48. We have already analysed the scheme of both the Acts. Basically, the NPA Act is enacted to enforce the interest in the financial assets which belongs to the bank/FI by virtue of the contract between the parties or by operation of common law principles or by law. The very object of Section 13 of NPA Act is recovered by non-adjudicatory process. A secured asset under the NPA Act is an asset in which interest is created by the borrower in favour of the bank/FI and on that basis alone the NPA Act seeks to enforce the security interest by non-adjudicatory process. Essentiatly, the NPA Act deals with the rights of the secured creditor. The NPA Act proceeds on the basis that the debtor has failed not only to repay the debt, but he has also failed to maintain the level of margin and to maintain value of the security at a level is the other obligation of the debtor. It is this other obligation which invites applicability of NPA Act. tt is forthis reason, that Sections 13(1) and 13(2) of the NPA Act proceeds on the basis that security interest in the bank/FI needs to be enforced expeditiously without the inten/ention of the court/tribunal; that liability of the borrower has accrued and on account of default in repayment, the account of the borrower in the books of the bank has become non-performing. For the above reasons, NPA Act states that the enforcement could take place by non-adjudicatory process and that the said Act removes all fetters under the above circumstances on the rights of the secured creditor." 16) Theoperation of the general Act may be curtailed by a tater Special Act. In tenth edition of Principtes of Statutory Interpretation by celebrated author Justice G.P. Singh, former Chief Justice, it is obsen/ed as under: (2005) 7 SCC 234 .-<& ": ft , / ^^_^ ^ ^"•"aSSs. 1 ^ » !s /?' 'ter'" ,'y1 ll-l 7l "A generalAct's operation may be curtailed by a later Special Act even if the general Act contains a non-obstante clause. The curtailment of the general Act will be more readily inferred when the later Special Act also contains an overriding non- obstante provision." (See Allahabad Bank vs. Canara Bank and another ). 17) The main contention of the learned counsel for the petitioners is that once notice under Section 13 (2) of the SARFAESI Act has been issued the second demand notice under Section 13 (2) cannot be issued. Sub-sections (1), (2), (3), (3A) & (4) of Section 13 of the SARFAESI Act reads as under: "13. Enforcement of security interest.—(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favourof any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4). (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. [(3-A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises 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, he shall communicate within one week of receipt of such representation or objection the (2000) 4 SCC 406 / 10 '^fS..^^.^^"' '"•"^•BiSiSE^^ ^ reasons for non-acceptance of the representation or objection to the borrower : Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shalt not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under Section 17 or the Court of District Judge underSection 17A.] (4) In case the borrower fails to discharge his liability in full within the period specified in sub- section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:— (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; [(b) take over the management of the business of the borrower inctuding the right to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised onty where the substantiat part of the busjness of the borrower is held as security for the debt: Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security forthedebt;] (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured . creditor, so much of the money as is sufficient to pay the secured debt." 18) Chapter III of the SARFAESI Act deals with enforcement of security interest. Section 13 (2) provides for classifying the debt as "^ ~%i a^ 1 ^ M 11 '.t::-. non-performing asset (NPA). In that event, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditorwithin sixty days from the date of notice. In default, it is provided for taking possession of the secured assets of the borrower inter alia provides for taking recourse to several measures as prescribed in sub-section (4). Sub-section (3A) provides for making representation in reply to a notice under sub-section (2) and in case a representation is made, the secured creditor shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower. 19) In the instant case, the first notice under Section 13 (2) of the SARFAESI Act was issued on 24-2-2005 (Annexure-P/1). A representation was made by the petitioners on 13-4-2005. No communication of representation or acceptance of representation was issued by the respondents Bank. In the meantime, an application was filed under the provisions of the Act, 1993 for recovery ofmoney before the DRT. During pendency of the said application before the DRT, second notice under Section 13 (2) of the SARFAESI Act was issued on 28-7-2006 (Annexure-P/4). The petitioners sent a legal notice/ representation on 4-10-2006. The respondents Bank replied to the said notice/ representation holding that the first notice dated 24-2-2005 under Section 13 (2) of the SARFAESI Act be treated as withdrawn. It was observed that subsequent notice dated 28-7-2006 be given effect to. Thereafter, the petitioners made one more representation dated 16-10-2006 (Annexure-P/7). The respondents Bank replied to the said notice within seven days i.e. on 23-10-2006 rejecting the representation of the petitioners and further informing the petitioners to take possession of the properties/assets charged to the Bank on 13-11-2006, ?'-"s1 l 1V u[ 11, / /- f" ^'•SSBS^ E. V.. "g fc ^v. ''-s..-./'>S' 12 /r 20) The question which fell for consideration of the Court is that as to whether second notice dated 28-7-2006 under Section 13 (2) of the SARFAESI Act is a valid notice. 21) The respondents Bank had not taken the first notice to its logical conclusion as the respondents Bank failed to reply to the notice within one week as prescribed under sub-section (3A) of Section 13 of the SARFAESI Act. There is no bar or prohibition in the provisions of the SARFAESI Act for not issuing the second show cause notice. Since the first notice under Section 13 (2) ofthe SARFAESI Act was withdrawn, the second notice may be treated as first notice under Section 13 (2) of the SARFAESI Act. The petitioners have not suffered any loss or prejudice on account of the fact that the first notice dated 24-2-2005 under Section 13 (2) of the SARFAESI Act was not taken to its logical conclusion as the petitioners have been in a position to retain the money for more period till the second notice dated 28-7-2006 under Section 13 (2) ofthe SARFAESI Actwas issued. 22) Pendency of an application before the DRT is no longer a bar to initiate a proceeding under the provisions of the SARFAESI Act as held by the Hon'ble Supreme Court in the matter of Transcore (supra). The petitioners cannot be permitted to enjoy the loan amount on the technical ground that the first notice was not taken to its logical conclusion; therefore, second notice under Section 13 (2) is barred/prohibited. The petitioners have enjoyed the amount for a longer period as the first notice was not taken to its logical conclusion. 23) The SARFAESI Act is enacted to regulate securitisation and reconstruction of financial assets and enforcemenf of security interest and for matters connected therewith. The SARFAESI Act enables the banks and Fl to realize long-term assets, manage problems of liquidity, asset ^- ..--.s'"' 13 K M ''^&^' Gowri liability mis-match and to improve recovery of debts by exercising powers to take possession of securities, setl them and thereby reduce non- performing assets by adopting measures for recovery and reconstruction. The SARFAESI Act is nobte to strengthen the economy of the country. The first notice dated 24-2-2005 could not be taken to its logical conctusion for taking recourse to provisions of Section 13 (4) of the SARFAESI Act. Thus, it is held that there is no bar or prohibition to issue second notice underSection 13 (2) ofthe SARFAESI Act, if the first notice issued under Section 13 (2) of the SARFAESI Act has not been given effect to. 24) Reliance of the