IN THE HIGH COURT OF JUDICATURE AT PATNA LETTERS PATENT APPEAL No.129 OF 2008 IN CIVIL WRIT JURISDICTION CASE NO.9527 OF 2007. ====================================== WITH INTERLOCUTORY APPLICATION NO.4643 OF 2009. IN LETTERS PATENT APPEAL NO.129 OF 2008. ====================================================== 1. The State Bank of India through its Chairman, Bombay, Nariman Point, Mumbai-400021 2. The General Manager, State Bank of India, Patna 3. The Deputy General Manager, state Bank of India, Zonal Office, Bhagalpur 4. The Assistant General Manager (DBD (Wrongly described), Main Branch, SBI, Bhagalpur 5. Mr. Sanjay Jha, the then Branch Manager (DBD (wrongly described), Main Branch, SBI, Bhagalpur 6. Mr. Vishwajeet Mishra, the then Field Officer, (DBD, Main Branch, Bhagalpur 7. The Branch Manager (DBD (wrongly described), Main Branch, SBI, Bhagalpur 8. The Field Officer (DBD) Main Branch, SBI, Bhagalpur 9. M/s AAA Capital Services Pvt. Ltd. Through the Respondent no.5 All the aforesaid being the officers of the State Bank of India in their official capacity are being represented through the Manager Arun Kumar Singh S/o Late Udit Narayan Singh, resident of At and P.O. Jamshi, P.S.Lodipur, District- Bhagalpur , (SARC), RASECC SARC, Zonal Office, Khanjarpur, P.S. Barari, District- Bhagalpur under Regulation 77 read with Regulation l76 of the State Bank of India General R, 1955. - …………………. .Appellants. Versus 1. M/s Prachi Exim India Ltd, through its Managing Director, Amal Kumar Choudhary 2. Amal Kumar Choudhary S/o Late Chandra Bhushan Prasad Choudhary 3. Mahendra Narain Kumar son of Late Mahivir Kumar, all residents of village Gauripur, P.S.Bihpur, District Bhagalpur 4. Shri Netlal Saha, Bikhampur Chowk, Gumti No.2, G.C.Banerjee Road, Bhagalpur.- ………………… Respondents. ================================================== 2 Appearance : For the Appellant : Mr. S.D.Sanjay, Advocate Mr. Akash Chaturvedi, Advocate Mr. Gautam Kejriwal, Advocate For respondent nos.1-3 : Mr. Binod Kumar Singh , Advocate For respondent No.4 : Mr. Rama Kant Sharma, Senior Advocate =================================================== CORAM: HONOURABLE THE CHIEF JUSTICE AND HONOURABLE MR. JUSTICE JYOTI SARAN Dated 17th August 2010. ORAL JUDGMENT (Per: HONOURABLE THE CHIEF JUSTICE) INTERLOCUTORY APPLICATION NO.4643 OF 2010. This Letters Patent Appeal preferred under Clause 10 of the Letters Patent arises from the judgment and order dated 22nd January 2008 passed by the learned Single Judge in C.W.J.C.No.9527 of 2007. The appellant before us is the State Bank of India and its officers (hereinafter referred to as „the Bank‟). The respondents are M/s Prachi Exim India Limited, its Managing Director and the Directors (hereinafter referred to as „the Company‟). 3 The subject matter of challenge in the writ petition was the action of the Bank in enforcing security interest in respect of the secured asset in exercise of power conferred by Section 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as „the Act of 2002‟). In or around the year 2003, the Company approached the Bank for financial assistance. The Bank extended financial assistance, inter alia, in terms of Cash Credit Loan of Rs.14 lakhs. According to the Bank, the said account of the Company became irregular and was overdrawn continuously since March 2004 till August 2005. Consequently, the Bank identified the said account as a „non performing asset‟. On 8th February 2007 the Bank gave notice to the Company for discharge of its liability in full under section 13(2) of the Act of 4 2002. The said notice was received by the Company on 13th February 2007. Feeling aggrieved, the Company approached this Court under Article 226 of the Constitution of India in C.W.J.C.No.6500 of 2007. The Company, inter alia, claimed that against the notice under section 13(2) of the Act of 2002, it had lodged objection on 18th April 2007. Pending the proceeding before this Court, the Bank proceeded further to exercise power conferred under section 13(4) of the Act of 2002. The Bank took over possession of two of the secured assets being a house situated at Bhagalpur and a property at Gauripur on 10th and 11th July 2007 respectively. It appears that unaware of the aforesaid development, the learned Single Judge (Corum: Mrs. Mridula Mishra, J.) disposed of the above C.W.J.C.No.6500 of 2007 on 11th July 2007. The Court recorded 5 the contention raised by the Company that in response to the notice received by the Company, the Company had filed objection on 18th April, 2007. The Court also recorded the denial by the Bank. Without resolving the issue whether or not such objection was filed, the Court directed the authorized officer of the Bank: “to consider the objection filed by the Company and dispose it of in accordance with law within two weeks from the date of filing such objection. Till disposal of the objection filed by the petitioner, no coercive action should be taken against the petitioner. The respondent is also directed to communicate the order to the Bank through registered post.” It is not in dispute that the above order has become final. It is admitted that the Company did not file any objection after the aforesaid order nor did the Bank consider and decide the objection allegedly filed on 18th April 2007. The Company filed above C.W.J.C.No.9527 of 2007 to challenge the 6 validity of the notice issued under Section 13(2) of the Act of 2002; the action of the Bank in taking over the possession of the secured assets and the action of the Bank in treating the account of the company as „non performing asset‟. According to the Bank, the Bank had given notice under section 13(2) of the Act of 2002 on 8th February 2007; that was received by the Company on 13th February 2007. Objection, if any, ought to have been lodged within 60 days from the date of the receipt of the notice. The Company did not lodge any objection. After expiry of 60 days from the date of the delivery of the said notice, the Bank was authorized to proceed further under Section 13 (4) of the Act of 2002. The learned Single Judge was, by the impugned judgment and order, pleased to allow the writ petition on the sole ground that the Bank failed to consider the 7 objection filed by the Company and to communicate its decision as envisaged by section 13(3A) of the Act of 2002. Consequently the action of the Bank has been set aside. Feeling aggrieved, the Bank has preferred the present appeal. By order dated 13th February 2007 the appeal was admitted for hearing and notice was directed to be issued on stay petition. It was further directed, “the operation of the judgment under appeal shall remain stayed until the respondents-petitioners deposit rupees three lacs within a period of fifteen days from the date of receipt of this order and further submits adequate guarantee to the satisfaction of the appellants for paying rupees five lacs plus accrued interest on the outstanding shown in notice under section 13(2) of the SRFAESI Act, 2002 by every week within fifteen days from the date of service of this order. On fulfillment of above conditions the stay shall cease to operate.” It is not in dispute that the Company failed to comply with the aforesaid direction and the stay continued. 8 In view of the stay granted by the Court, the Bank proceeded to dispose of the aforesaid Bhagalpur property of the Company. Advertisement for auction sale was published. Feeling aggrieved, the Company approached this Court in I.A.No.3430 of 2009. The Court, by its judgment and order dated 22nd May 2009 passed in the interim application, held that the Company had failed to comply with the conditions as per the order dated 13th February 2008. The Court further observed: “as a result of which the stay order cannot be deemed to be operating in favour of the respondents. In that view of the matter, the appellant Bank can proceed with the auction sale of the property of the respondent.” In view of the aforesaid order, the Bank proceeded with the auction sale of the Bhagalpur property of the Company and sold it for Rs.15,75,001/- to the third party against the upset price of Rs.14,00,000/-. 9 Learned Advocate Mr. S.D.Sanjay has appeared for the Bank. He has taken us through the provisions under Section 13 of the Act of 2002. He has submitted that Sub section (2) of section 13 of the Act specifically obliges the borrower to discharge its full liability to the secured creditor within 60 days from the date of notice failing which the secured creditor is entitled to exercise all or any of the rights under section 13(4) of the Act. He has submitted that the moment the sixty days are over, the right of the Bank to act under Section 13(4) of the Act of 2002 crystallizes. Therefore, the objection as envisaged by sub Section (3A) of section 13 of the Act of 2002 are necessarily required to be lodged before the expiry of 60 days of the receipt of the notice under Section 13(2) of the Act of 2002. In absence of any objection lodged within 60 days as aforesaid, the Bank was authorized to act 10 under sub section (4) of section 13 of the Act of 2002. Mr. Sanjay has submitted that the Company did not lodge any objection. He has denied that the Company had lodged objection on 18th April 2007, as averred. In the submission of Mr. Sanjay, even if it is believed that the objection was lodged, it was, indisputably, lodged after the expiry of sixty days envisaged by section 13(2) of the Act of 2002. The action of the Bank is, therefore, beyond reproach. Mr. Sanjay has also relied upon the guidelines framed by the Reserve Bank of India in respect of non performing assets, prevalent at the relevant time. He has submitted that in case of Overdraft/Cash Credit, it is “the account that remains “out of order” for a period of more than 90 days” The expression „out of order‟ has been defined in paragraph 2.2 of the guidelines as 11 “an account should be treated as “out of order‟ if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Bank‟s Balance Sheet, or where credits are not enough to cover the interest debited during the same period, such accounts should be treated as „out of order‟.” Mr. Sanjay has relied upon the account statement annexed to the present appeal. He has submitted that the account of the Company was continuously overdrawn since April 2004 until June 2005. AS the Company‟s account was irregular, the Bank was constrained to exercise its power to recover its dues under the Act of 2002. He has also demonstrated that the Company was specifically informed that its account was treated as „non performing asset‟. In the submission of Mr. Sanjay, the Bank had taken all precautionary measures and had 12 followed the required procedure before disposing of the secured asset in exercise of power conferred by section 13(4) of the Act of 2002. In support of his argument, Mr. Sanjay has relied on a decision of the Supreme Court in the matter of M/s Transcore V. Union of India & Anr. (AIR 2007 SC 712). Learned Advocate Mr. Binod Kumar Singh, has appeared for the Company. He has contested the appeal. He has challenged the action of the Bank right from the status of the Company‟s account. He has submitted that the Company‟s account was never classified as „non performing asset‟. He has submitted that the Company had operated the account till August 2006 which indicates that until August 2006 the account was not classified as „non performing asset‟. The Bank‟s plea that the Company‟s account was classified as „non 13 performing asset‟ as early as June 2005 is ex facie false. He has further submitted that the Bank has manipulated the records. The possession of the secured assets was taken over and sealed by the Bank on 10th July 2007 between 2 P.M. and 4 P.M. Nevertheless, the record was manipulated to read as 12 P.M. to read 4 P.M. He has submitted that the manipulation has been made by the Bank with a view to circumventing the orders of this Court. The learned Advocate has relied upon the definition of the words “default” appearing in section 2(1)(j) and „non performing asset‟ appearing in section 2(1)(o) of the Act of 2002. He has heavily relied on section 13 (3A) of the Act of 2002. He has submitted that it was the statutory duty of the Bank to consider the representation or objection that was filed by the Company. The provision made in sub 14 section (3A) of section 13 of the Act is mandatory. It is the expropriatory nature of the Act of 2002 that called for the safeguard against highhanded action by a bank. That safeguard was introduced by insertion of sub section (3A) in Section 13 of the Act of 2002 by Act 30 of 2004. The said provision is, therefore, mandatory. Unless the objections were considered and communicated, the action taken under Section 13(4) of the Act of 2002 would be vitiated. In the present case, admittedly the Bank did not consider the objection lodged by the Company on 18th April, 2007. Action of the Bank has rightly been set aside by the learned Single Judge. Mr. Singh has also relied upon the Rules 3A, 4 and 8(5) of the Security Interest Enforcement Rules, 2002. He has submitted that the aforesaid Rules lay down the procedure the secured creditor is required to follow. The provisions are 15 mandatory. Any infarction in the procedure would necessarily render the action null and void. He has submitted that in the present case, not only the Bank did not consider the objection lodged by the Company, it failed to follow the procedure laid down in the aforesaid rules. He has submitted that the Bank did not advertise the sale properly. Only one bidder came forth. The property has been sold away at the price below par. The action of the Bank betrays malafides on the part of its officers. He has next submitted that the secured asset at Bhagalpur was disposed of and transferred to the third party pending the litigation; the principle of lis pendence shall apply. Mr. Singh has relied upon the decision in the matter of M/s Stan Commodities Pvt.Ltd. V. Punjab & Sind Bank (AIR 2009 Jharkhand 14). 16 Mr. Singh has also filed Interim Application No.4643 of 2010. He has submitted that in the proceeding pending before this court, the Bank has made false statement in respect of the status of the account of the Company and has manipulated the record of taking over possession and sealing of the secured assets and has thus committed offence punishable under the Indian Penal Code. He has submitted that the Court may take action against the Bank. We may note here that the issues raised before us were not urged before the learned Single Judge nor the supporting materials were brought on record. The issues raised by Mr. Singh are disputed questions of fact which could not have been entertained in a petition under Article 226 of the Constitution, nor in the present appeal. We are of the opinion that it is irrefutable that the Company‟s account was irregular and was continuously overdrawn as 17 alleged by the Bank. The Company was put to notice that its account was identified as non performing asset. It was never the plea of the Company that it did not receive notice issued under section 13(2) of the Act 2002. It was for the Company to prove that it had filed objection and that the objection filed in the Bank on 18th April 2007 was within 60 days of its receiving notice under section 13(2) of the Act 2002. In absence of such plea, we are constrained to hold that the objection if lodged on 18th April 2007 was after the expiry of 60 days from the date of the receipt of the notice. It may be noted here that the Bank has staunchly denied that the Company had filed objection on 18th April 2007 or on any other day. We shall now examine the legal provisions. Whether the right to file objection conferred upon a borrower could be exercised at any time before any measure 18 under section 13(4) of the Act 2002 was taken or should such right be exercised within 60 days from the receipt of the notice. In our opinion, sub section (2) of section 13 of the Act 2002 is quite clear and unambiguous. It provides that in the event the borrower fails to discharge its liability within 60 days from the date of the notice, the secured creditor shall be entitled to exercise any of the rights under section 13(4) of the Act. This necessarily means that on expiry of 60 days from the date of the notice under section 13(2) of the Act of 2002, the right of the secured creditor to take measures under section 13(4) of the Act of 2002 crystallizes. We are, therefore, of the considered opinion that though sub section 3A of section 13 of the Act of 2002 does not specify time within which 19 objection/representation be filed by a borrower; by necessary implication it has to be made within 60 days of the notice under section 13(2) of the Act of 2002. Lest the right vested unto a bank to proceed further under section 13(4) of the Act of 2002 after expiry of 60 days from the date of the notice would become nugatory. The objection by a borrower against the notice under section 13 (2) of the Act, has to be lodged within 60 days from the date of the receipt of the notice. The objection lodged after expiry of 60 days is of no consequence. In the present case, as recorded hereinabove, in absence of the plea taken by the Company that it had lodged the objection within 60 days of the notice and in view of the specific plea taken by the Bank that the objection was not lodged at all or at least not within 60 days from the date of the notice, we hold that the 20 objection lodged by the Company, if any, was of no consequence. The Bank was under no obligation to consider such objection and to communicate its decision to the Company before it proceeded further with all or any of the measures under section 13(4) of the Act of 2002. For the aforesaid reasons, we allow this appeal. The impugned judgment and order dated 22nd January 2008 passed by the learned Single Judge in C.W.J.C.No.9527 of 2007 is quashed and set aside. C.W.J.C.No.9527 of 2007 is dismissed. The Interim Application No.4643 of 2010 is disposed of. (R.M.Doshit,CJ) (Jyoti Saran,J) NAFR/ahk. 21