IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE ACTING CHIEF JUSTICE MR.P.R.RAMAN & THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR FRIDAY, THE 5TH MARCH 2010 / 14TH PHALGUNA 1931 WA.No. 86 of 2009() ------------------- AGAINST THE JUDGEMENT IN WPC.35615/2008 Dated 03/12/2009 .................... APPELLANT: -------------- M/S M.SHAMSUDHIN & CO. POST OFFICE ROAD, KOLLAM, REPRESENTED BY THE PARTNER SMT. S. LUBABATH, NOW RESIDING AT ROLES DAN, KACHERIPADY, ERNAKULAM. BY ADV. SRI.P.RAVINDRAN, SENIOR ADVOCATE SRI.ANIL SIVARAMAN RESPONDENT(S): --------------- 1. THE INDIAN BANK REPRESENTED BY ITS MANAGER, KOLLAM BRANCH, KOLLAM. 2. THE RECOVERY OFFICER, DEBT RECOVERY TRIBUNAL OFFICE OF THE RECOVERY OFFICER, KERALA & LAKSHADWEEP,K.S.H.B. BUILDING, PANAMPILLY NAGAR, KOCHI. ADV. SRI.S.EASWARAN FOR R1 THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 05/03/2010, ALONG WITH WA NO.94 OF 2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: P.R.RAMAN, AG. C.J. & C.N.RAMACHANDRAN NAIR, J. .................................................................... Writ Appeal Nos.86 & 94 of 2009 .................................................................... Dated this the 5th day of March, 2010. JUDGMENT Raman, Ag. C.J. Both the appeals arise out of the common judgment in W.P.(C) No.30443 and 35615 of 2008. The appellant in W.A. No.86/2009 who is the petitioner in W.P.(C) No.35615/2008, is a debtor to the first respondent-Bank that culminated in a recovery order under the RDB Act. The appellants in W.A. No.94/2009 who were the petitioners in W.P.(C) No.30443/2008, claimed that they have purchased certain items of immovable properties from the debtors. They, as of right, could not claim any relief against the Bank as there is no privity of contract between them and the first respondent-Bank. The prayer made in the W.P.(C) No.35615/2008 is to quash Ext.P7 notice issued by the first respondent-Bank and for a writ of mandamus commanding the respondents to settle the loan account by accepting a sum of Rs.3.5 Crores from the petitioner and release all the properties and for other consequential relief. The prayer made in W.P.(C) No.30443/2008 W.A. 86&94/2009 2 relating to W.A. No.94/2009 is also to quash Ext.P7 and for a writ of mandamus commanding the respondent-Bank to settle the dues from respondents 3 to 5 in the W.P.(C) in respect of the properties covered by Exts.P3 and P3(a) after receiving the amount of Rs.2 crores from the writ petitioners and for a declaration that the Bank can charge interest only at the rate as fixed by the Reserve Bank of India. Virtually the reliefs prayed for in both the Writ Petitions against which Writ Appeals are filed, are similar. Since the claim is raised against the first respondent and since privity of contract is only between the appellant in W.A. No.86/2009 and the Bank, we will refer to the facts relating to W.P.(C) No.35615/2008. According to the petitioner, first respondent-Bank is not showing any interest in settling the accounts under the one time settlement, though they are expected to act in terms of the directions contained in the Circulars issued by the Reserve Bank of India in the matter of settlement of accounts and that the Bank has been enhancing the amount from time to time without any basis. It is contended that in Ext.P2 letter while the Bank agreed to settle the accounts by remitting Rs.86.16 lakhs, they suddenly increased their W.A. 86&94/2009 3 amount to Rs.3.5 Crores later. 2. Ext.P7 is a notice issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to in brief as the SERFAESI Act). The notice proceeds to state that as a security for the credit facility, various documents were executed by the borrowers along with surety offering title deeds as security for the due discharge of the said liability. The Suit O.S. 75/1986 was instituted by the Bank for the recovery of Rs.1,42,07,028.12 with interest at the rate of 19.5%, with quarterly rest, from the date of the suit till realisation and eventually decree was passed by the civil court as prayed for allowing interest at 19.5% from the date of the suit till 19.10.1989 and thereafter at the rate of 12%. Against the said judgment, Bank preferred Appeal No.6/1991 before this court and the High Court modified the judgment and decree and granted interest at 19.5% per annum from the date of the Suit till realisation. In other words, judgment and decree of the lower court limiting interest to 12% from 19.10.1989 was set aside and the Bank was enabled to get interest at the contract rate of 19.5% W.A. 86&94/2009 4 throughout till realisation. It was in such circumstances that the Bank took securitisation proceedings, which is in terms of the judgment and decree in O.S. No.75/1986, as modified by the High Court in A.S. No.6/1991. In terms of the above judgment and decree of the High Court a sum of Rs.6,94,54,863.01 is payable as on 31.8.2008 plus such future interest payable in accordance with law, till date of realisation of debt in full plus other applicable charges. Despite the request calling upon the borrower to pay the amount, they committed default in repaying the same. In accordance with the directions relating to Assets Classification issued by the Reserve Bank of India, the loan account was classified as non-performing asset and accordingly the Bank approached the Debt Recovery Tribunal and obtained a Recovery Certificate dated 19.12.2007. Thus the borrower is bound to pay further interest on the application claim at the specified rate of 19.5% from 1.9.2008 till date of repayment inclusive of cost and other charges. Therefore, the borrower was called upon to pay the amount due as on 31.8.2008 namely, Rs.6,94,54,863.01 together with interest at 19.5% from 1.9.2008 till date of payment within 60 days from the W.A. 86&94/2009 5 date of receipt of notice under Section 13(2) of the SARFAESI Act, failing which Bank will be constrained to exercise its right of enforcement of security interest, without any reference to the borrower under the said Act. It is also stated that in case of failure to discharge the liability within the aforesaid time, Bank will be exercising its enforcement right under Section 13(4) of the Act as against the secured assets given in the schedule to the said notice. The properties which were offered as security are shown in the schedule. It is challenging the said notice that the appellant-petitioner approached this court. The learned Single Judge held that the debtors are not entitled to the benefit of one time settlement scheme in terms of the RDB guidelines since the DRT has already passed the recovery order. Reliance is placed on the decision of the apex court in X-CALIBRE KNIVES(P) LTD. AND ANOTHER V. STATE BANK OF INDIA [2005(10) SCC 265]. However, the Bank was directed to consider the request of the appellants for receiving payments and releasing the properties which is a matter to be under the commercial wisdom of the Bank. If any among the petitioners pay the amount, that would obviously be under W.A. 86&94/2009 6 distress and hence he would be entitled to move against any among the private respondents other than the bank for compensation, restitution etc. in accordance with law. It was further held that in case any controversy survives regarding the total outstandings, it is a matter for determination by the Recovery Officer in terms of the recovery certificate issued by the DRT as modified by any superior authority or court. Release of the documents would also be in terms of law. Other reliefs were rejected. It is challenging the above judgment that both the above Writ Appeals are preferred. 3. Senior counsel Sri.P.Ravindran appeared on behalf of the appellant in W.A. No.86/2009, Adv. Sri.Ramesh Babu appeared on behalf of the appellants in W.A. No.94/2009 and Adv. Sri.S.Easwaran appeared on behalf of the first respondent-Bank. We heard the parties. 4. According to the appellants, the Bank having proceeded to recover the amount by instituting Civil Suit and having obtained a decree and having approached the DRT thereafter for a Certificate of Recovery, such debt cannot be recovered by initiating proceedings under the SARFAESI Act. Even if the provisions contained in the W.A. 86&94/2009 7 SARFAESI Act will apply in the facts and circumstances of the case, still the borrower is entitled to claim the benefit of one time settlement. In that context it is contended that the Bank made an offer to settle the matter by paying Rs.86 lakhs and though no documentary evidence as such is produced, it is contended that the borrower was prepared to pay the amount. It is also contended that during the pendency of the Writ Appeals, an interim order was passed based on which an amount of Rs.4 crores was deposited initially, of which Rs.2 crores has been adjusted and the balance is withdrawn by the appellants. 5. At the outset we may state that steps to settle the matter between the parties by referring to mediation, did not fructify. In the course of argument Sri.Easwaran appearing on behalf of the Bank submitted that as a matter of gesture in case an amount of Rs.6 crores more is paid, the Bank will consider the claim for settling the matter under one time settlement, to which course, however, the appellants were not agreeable. According to them, the balance amount less what has already been deposited and paid over to the Bank is only Rs.2 crores. In view of the above situation and since there is dispute W.A. 86&94/2009 8 regarding the amount that is payable, this court cannot go into the disputed contention with reference to the amount actually due and payable in the writ proceedings and in this appeal. Therefore, we proceed to consider only the legal question. 6. That the Bank has obtained an enforceable decree and thereafter obtained a Recovery Certificate form the DRT are beyond doubt. The question as to whether the Bank can still proceed under the SARFAESI Act is not seriously in dispute. It has been settled by various decisions that it is open to the Bank to invoke the provisions of the SARFAESI Act even after obtaining a decree. But according to the counsel, what is realisable under the Act is only the secured debt and as per Section 13 of the Act what the Bank is entitled to do is only to enforce the security interest created in favourof the secured creditor without the intervention of the court or the Tribunal by the creditor in accordance with the provisions of the Act, notwithstanding anything contained in Section 69 or Section 69A of the Transfer of Property Act and according to the counsel, the debt crystalised in the form of a decree cannot be recovered. Per contra, Sri.Easwaran appearing on W.A. 86&94/2009 9 behalf of the Bank contended that the Bank has proceeded to approach the civil court for a decree which crystalised in the form of a decree and after obtaining a Recovery Certificate, the secured debt is the amount as found due as per such Certificate of Recovery or the decree as the case may be, and hence they are entitled to proceed to execute the same in accordance with the provisions contained in the SARFAESI Act. It is also contended by him that after the decree is passed by the civil court, the question of extending the benefit under one time settlement may not arise. Still the Bank has offered to extend the same benefit. Even though at that time the appellant offered only Rs.46 lakhs, the Bank wanted him to increase his offer to Rs.86 lakhs for the purpose of considering his claim for OTS and the amount of Rs.86 lakhs is not the final amount due or payable under the OTS. It is only part payment for the purpose of enabling the Bank to consider his claim for OTS. So, however, he did not respond to the notice and, therefore, the Bank has revoked the offer. At this distance of time since the appellant has sold other items of properties, what is available to be proceeded is only three items of properties and, therefore, they are entitled to proceed to W.A. 86&94/2009 10 sell the property in accordance with the provisions contained in Section 13 of the SARFAESI Act. 7. Section 13(1) of the SARFAESI Act provides that notwithstanding anything contained in Section 69 or Section 69A of the Transfer of Property Act, 1882, 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. As per Section 2(zf) "security interest" means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31. Admittedly mortgage was created in favour of the Bank for the borrowed amount with interest due as per the terms of the borrower and, therefore, it cannot be said that the Bank is not entitled to proceed to enforce the security interest under Section 13. The term "secured debt" defined under Section 2(ze) means a debt which is secured by any security interest. Admittedly debt was secured by such mortgage. The Bank, though entitled originally to fall upon the W.A. 86&94/2009 11 original agreement to quantify the amount due, in view of the subsequent steps taken by them in approaching the court and obtaining a decree and later a Recovery Certificate from the DRT in execution of the same, confined their claim to the amount as adjudicated by a competent civil court and confirmed in appeal. In no way the amount as crystalised and quantified by the court could be said to be outside the purview of the secured debt as defined in the Act. 8. Even though it is contended that after obtaining a decree, a decree debt cannot be enforced through or under the SARFAESI Act, in the light of the decision in EX-CALIBRE's case ((2005) 10 SCC 265) where the apex court held that when the DRT having passed the order determining the sum payable to the Bank and having issued a Recovery Certificate by the time the matter was taken up for consideration in terms of the one time settlement, refusal of the Bank to consider the case of the appellant under one time settlement was justified. Though in that case there was a contention on behalf of the appellants that the guidelines should not be made applicable to the cases in which the Bank has already been approached for settlement W.A. 86&94/2009 12 and even before the revised guidelines came into force, the same was not accepted. Since the appellants' or their representatives' representations were rejected on the ground that the requirements contemplated by the guidelines which then existed, were not fulfilled, no relief could be granted to them beyond that already granted by the Bank. In IVEE INJECTAA LTD. VS. JUNAGADH VIBHAGIYA NAGRIK(GUJ) ([2006] 129 COMPANY CASES 528), a decision of the Gujarat High Court, it was held that when secured creditor has already obtained a decree of a civil court/Debts Recovery Tribunal, issuance of notice under Section 13(2) of the Securitisation Act is not to be construed as institution of a suit in a civil court for enforcement of the mortgage, but the proceeding would be in the nature of execution of the decree. In SARDAR ASSOCIATES VS. PUNJAB & SIND BANK ((2009) 8 SCC 257) the apex court held that the guidelines issued by the RBI which is a statutory authority and the matter relating to supervision of Scheduled Banks is also to be governed by the RBI Act and referring to the guidelines issued by the RBI it was held though they are guidelines, they are binding in view of the earlier W.A. 86&94/2009 13 Constitution Bench decision of the apex court in CENTRAL BANK OF INDIA V. RAVINDRA (2002(1) SCC 367. The relevant portion of the said judgment of the Constitution Bench decision which was extracted in paragraph 38 in 2009(8) SCC 257 is as follows: "(5) The power conferred by Sections 21 and 35-A of the Banking Regulation Act, 1949 is coupled with duty to act. Reserve Bank of India is the prime banking institution of the country entrusted with a supervisory role over banking and conferred with the authority of issuing binding directions, having statutory force, in the interest of the public in general and preventing banking affairs from deterioration and prejudice as also to secure the proper management of any banking company generally. Reserve Bank of India is one of the watchdogs of finance and economy of the nation. It is, and it ought to be, aware of all relevant factors, including credit conditions as prevailing, which would invite its policy decisions. RBI has been issuing directions/circulars from time to time which, inter alia, deal with the rate of interest which can be charged and the periods at the end of which rests can be struck down, interest calculated thereon and charged and capitalised. It should continue to issue such directives. Its circulars shall bind those who fall within the net of such directives. For such transaction which are not squarely governed by such circulars, the RBI directives may be treated as standards for the purpose of deciding whether the interest charged is excessive, usurious or opposed to public policy." 9. Therefore, it cannot be said that a claim for one time settlement scheme in accordance with the approved guidelines of the RBI, which a W.A. 86&94/2009 14 borrower has got, is not an enforceable right. But in this case by Ext.P2 dated 20.5.2004 the first respondent-Bank informed partner of M/s.M.Shamsudin & Company with reference to his offer for Rs.40 lakhs as one time settlement of the dues of the above company that the higher authorities have not accepted his offer and he was advised to improve the offer to the minimum recoverable amount of Rs.86.16 lakhs as per the revised RBI guidelines. Nothing is produced in this case to show that the said offer was accepted by the borrower or anybody on his behalf pursuant to the said letter. Letter dated 14.2.2009 produced as Annexure-I along with their counter affidavit was issued by the Indian Bank informing their decision, in terms of the interim order dated 13.1.2009 passed in the Writ Appeal, wherein they say that in the year 2004 the minimum recoverable amount was shown as Rs.86.16 lakhs which request was examined and the present pleading of the borrower is that Rs.3.5 crores should be accepted as OTS now. Considering the same, it was said that the request was examined in detail, but the said request is not based on the facts and devoid of any merit. The letter dated 29.5.2004 was sent in response to W.A. 86&94/2009 15 letters dated 23.3.2004 and 29.3.2004 from the borrower requesting the Bank to accept Rs.40 lakhs as one time settlement. It was informed by the competent authority at that time itself that the offer of Rs.40 lakhs was not acceptable since the minimum recoverable amount at that time was Rs.86.16 lakhs. That by itself did not confer any right on the company to claim the benefit of OTS. Notwithstanding the above and inspite of such offer, the company went again and requested for one time settlement for an amount of Rs.40 lakhs which was duly rejected by the Bank. In the meantime, two items of property under mortgage to the Bank were also clandestinely sold by the borrower without permission from the creditor-Bank. Therefore, the conduct of the company clearly shows that there was a malafide intention to defraud the Bank. After 2004, the request was made only on 16.7.2008 indicating thereby the lack of seriousness to repay the amount borrowed from the Bank. In as much as the company did not accept the offer of Rs.86.16 lakhs made by the Bank in 2004, the same has lapsed due to non-acceptance and non-payment. The amount due as per the decree passed by the High Court has thus become payable by W.A. 86&94/2009 16 the borrower and as per the guidelines issued by the RBI on 4.10.2007, the OTS amount should generally be not less than the net present value of the realizable value of the available securities. In the circumstances, the offer to settle the matter for Rs.3.5 crores involving a sacrifice of public money amounting to more than Rs.5 crores as on this date cannot be acceded to and he was advised to pay the decree amount. At the time of issuing the recovery certificate and in its final order by the DRT, in the Transferred Application No.1/2007 after referring to the decision of the apex court in X-CALIBRE'S case (2005) 10 SCC 265) it was held that the OTS guidelines issued by the Reserve Bank of India did not have any application at all after decree has been passed. It was after considering the various payments made and after taking into account the decree that the certificate of recovery was issued. 10. Narration of the above facts would indicate that even though the Bank had at one point of time made an offer to extend the benefit of one time settlement if the borrower improves his payment by raising the amount to Rs.86.16 lakhs, that was not responded to. When an offer was made and this offer was not accepted by the borrower, at this W.A. 86&94/2009 17 distance of time it cannot be said that there is any obligation cast on the Bank to proceed to consider such request even assuming that one time settlement benefit could still be claimed by the appellants. Even though we agree with the contention of the learned counsel for the appellants that if the amount could be recovered under the SARFAESI Act after obtaining a decree, certainly the appellants have the option as per the guidelines issued by the RBI to claim the one time settlement benefit even when SARFAESI proceedings are thus initiated by the Bank under Section 13, but the dispute between the parties is on the actual amount due and payable. If that be the case, this court under Article 226 of the Constitution of India cannot resolve the dispute by entering a finding as to what is the actual amount due or payable. At any rate in so far as there is a decree, which is crystalised in the form of a Recovery Certificate issued by the DRT, prima facie it cannot be said that the recovery proceedings initiated by the Bank under the SARFAESI Act is any way illegal or vitiated by any reason as contended. 11. In the result, we find that the conclusion reached by the W.A. 86&94/2009 18 learned Single Judge declining relief to the appellants is perfectly right, but for our own reasons as stated above. Writ Appeals fail and are accordingly dismissed. P.R.RAMAN Acting Chief Justice C.N.RAMACHANDRAN NAIR Judge pms