6^1^ S'ngtoBencft e IN THE HIGH COURT OF JUbICATURE AT BILASPUR WRIT PETITION (c) N0. ^~^ U O of 2009 PETITIONER Anii Kumar Agarwal/ son of Shri Radhe Shyam AgGrwal, aged 42 years, Prpprietor of M/s Shyam Rice & Parboiling Unit, Nev^ District Raipur. Vs RESPONDENTS 1. I.C.I.C.I. Bonk, G banking company duly incorporated under the relevQnt provisions of the law onda bank within its meaning under the Banking Regulation Act corrying on the business of banking ali over the India, having its office RNAG, Khajrani, Malav PQriSGr, A.V. Road, Indore (AA.P.) and a branch office ot Civi! Lines\ Raipur y ^ (^G). 2. The bistrict Magistrate/ Co!lector, Rai'pur. , WR1T_PETITIQN UNDER ARTICLE 226 OF THE CONSTZTUTION OF INblA v^/ ^r^y ^^nlV^ ^y'. ^%/ ^'A^ ./w to A-F^ HIGH COURT OF CHHATTISGARH : BILASPUR. PETITiONER BES£QNDENTS WRIT PETITION (C) N0.504Q QF 2009 Anil KumarAganA/al Versus I.C.I.C.I. Bank&Another -^. Po&tfor pronouncement of the orderpn _^__{day.o^September. 20;1Q Sd/- SatishK.Agnihotri Judge c^. "?y^3sam^s-'s HIGHCOURT OF CHHATTISGARH : BILASPUR P(E1:iT:IQNER WRIT PETITION <C) N0.5040 OF 2009 Anil KumarAgarwal RESPO.NDENTS Versus I.C.I.C.I. Bank & Anoth.er c.' (Writ petitions under Article 226 of the Constitution of India) Single Bench : Hon'ble Shri Satish K. Agnihotri, J. Present:- Shri B.P. Sharma,Advocate forthe petitioner. Ms. Fouzia Mirza, Advocate for the respondent No.1. ORDER (Deiivered on this 7 ^ day of September, 2010) 1 By t.his petition, the petitionerseeks to chalienge the legality and vaiidity ofthe notice dated 21/03/2009 (Annexure P/5) issued by the respondent bank under the provisions ofSection 13(2) ofthe Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the Act, 2002"). Further, to quash the proceedings initiatecl by the j respondent No-2 i.e. District Magistrate, Raipur. 2. The indisputable facts, in nutshell, as projected by the petitioner, are that the petitioner is carrying on the business in the name and style of M/s Shyam Rice & Parboiling Unit at Nevra District- Raipur. According to the petitioner, the petitioner applied for various loans and credit facilities frorn the respondent bank. After completing the necessary formalities, the respondent bank granted the loan benefit to the petitioner. However, on account of restriction imposed by the Krishi Upaj Mandi Samiti, Nevra on Essas'-s'SE.'^e" ?,^^. •-^ ^::i^. !<ai^ l ^^ ./" ^,. 28/02/2009 (Annexure P/1) from carrying the business of rice mill and parboiting, the petitioner committed certain defauits in making the payment of loan to the respondent bank. The said fact has been broughtby the petitioner to the notice of the respondent bank. In spite of said information, the respondent bank compelled the petitioner to make payment of loan arnount. Even the legal notice dated 03/02/2009 (Annexure P/3) has been sent by the respondent bank and asked the petitioner to make entire amount of loan along with interest accrued thereon within a period of 15 days. After receipt of the said notice, the petitioner submitted its reply dated 20/02/2009 (Annexure P/4) mentioning ali the djfficulties faced by it and ;;requested not to injtiate any action uncter the provisions of' the Act, 2002. Thc^r'eafter, the respondent bank issued the notice dated 21/03/2009 (Annexure P/5) under Section 13(2) Qf the Act, 2002. The petitioner submitted its reply to the impugned notice on ;^' 05/05/2009 (Annexure P/6) and sent trte same through speed post, which has been returned with a remark that "-^ ^ ^R", as is evident from Annexure P 17. Thereafter, the respondent No.2 invoking the provisions of Sectlon 14 of the Act, 2Q02 issued a notice dated 28/07/2009 (Annexure P/8) caliing upon the petitioner to appear before himon 24/08/2009 at 3.00 p.m., failing which ex parte action would be initiated against the petitioner. The said action of the respondent authorities is iilegai, •« ^ .!l: '^11^' 1 ^ ^/ '^.-.;.-.,.^..-^i w ^' arbitrary and against the provisions of law. Thus, this petition. 4. Shri Sharma, learned counsel appearing for the petitioner, would submit thatthe action of the respondent bank, initiated underthe provisions of the Act, 2002 for recovery of loan is illegal and arbitrary. The bank authorities ought to have received the reply sent by the petitioner to the notice under Section 13(2) of the , Act, 2002 and theycannot refuse to accept the same from the postal authorities. Shri Sharma would further submit that without deciding the objection raised by the petitioner, the authorities cannot proceed further, The impugned action of the respondenf, authorities is against the provisions ofArticles 14, 19 & 21 ofthe Constitution of India. Thus, the impugned notice dated 21/03/2009 (Annexure P/5) may be quashed and the respondents may be restrained from taking any coercive steps against the petitioner. 5. Ms. Fouzia Mirza, learned counsel for the respondent bank, " would submit that the petitioner, without availing the alternative efficacious remedy available under the provisions of Section 17 of the Act, 2002, hasapproachedthisCourt. Ms. Mirzawould furi:her submit that the petitioner has neglected in timely payment of the contractual liability and has committed a breach of terms and condition of loan agreement. In view of the guidelines issued by the Reserve Bank of India, the respondent bank called upon the petitioner t.o clear the entire.dues within a period of 15 days from the date of receipt of notice, failing which they wouid M- ^ 1, '^ ]] \;; ^: -i"y: /-' ^r ••-^ exercise their right as provided under the provisions of sub- section (4) of Section 13 of the Act, 2002. The respondent. bank has rightty approached the District Magistrate for taking possession of the secured assets.Ms. Mirza would next submit that since there is hierarchy of appeals under Section 17 of the Act, 2002, the petition filed under Article 226 may not be maintainable before this Court. Thus, the petitioner is not entitled to any relief a.nd thepetition deserves to be dismissed. 6, 1 have heard learned counset appearing for the parties, perused the pleadings and the documents appended thereto. 7. , Indisputably, the petitioner obtained a loan to the tune of Rs.2,23,50,OOO/- on security of immovable properties under his ownership, his spouse and ownership of Mr. Girdhari Agrawal and Mr. Sitaram Agrawal as guarantors. The petitioner failed in regutar payment ofthe instailments. Thus, a notice was issued to the petitioner under Section 13(2) ofthe Act, 2002 on March 21st, 2009 (Annexure P-5) calling upon M/s. Shyam Rice & Parboiling Unit 1 & II, Camp Tida, Post Nevra, District Raipur, the petitioner, Mr. Girdhari Agrawal and Mr. Sitaram Agrawal as guarantors, to discharge their liabilities. 8. According to the petitioner, petitioner submitted repty on 5.5.2009 (Annexure P-6), which was refused on 1.7.2009 as is evident from Annexure P-7 & Annexure P-8. Thereafter, the respondent No-1/ Bank moved an application to the District ^i^^.^. ^^—^ .!.,r^^1^ n i:U'Jr Magistrate, Raipur, for taking over possession of the secured assets. The District Magistrate/ respondent No.2, issued a notice to the petitioner to remain present alongwith all the documents on 24.8.2009 before the District Magistrate, Raipur (Annexure P- 8). The petitioner', without responding to the notice issued by the District Magistrate'under Section 14 of the Act, 2002, preferred to file this petjtion seeking quashing of notice under Section 13(2) and further proceedings pending before the respondent No.2 the District Magistrate, Raipur. 9 . The contention of the petitioner is that the respondent Bank could not have taken recourse to provisions of Section 14 without deciding the representation / repiy of the petitioner to : notice under Section 13(2) of the Act, 2002, as the sarne is: mandatory under' provisions of Section 13(3A) of the A.ct, 2002. Under proviso to Section 13(3A) of the Act, 2002, the petitioner /;' could not have preferred anappeal/ application to the Debts Recovery Tribunalunder Section 17 ofthe Act or the Court of District Judge ynder the provisions of Section 17A of the Act, 2002. 10. In the case on hand, since the reasons were not communicated within one week of receipt of such representation; the entjre proceedings initiated under Section 13(2) as well as unctei' Section 14 is illegal, unauthorized, thus, !:!ie same may be quashed. It is a well settled principle o'f: taw that. recovery proceeding under Section 13 ofthe Act, 2002 ^_.^^^^ 1'H>-J :'^.^^ does not involve an adjudication process; The secured asset is an asset in which interest is created by the borrower in.favour of the Bank/ Financial Institution. On that basis alone, the AGt, 2002 seeks to enforce the security Interest expeditiously without intervention of the Court/Tribunal. Thus, no adjudication is involved in enforcing the secured interest by taking over possession of the secured assets 11f In order to appreciate the points raised for consideration by this Court, it is necessary to quote the provisions of Section 13(1), 13(2), 3(3A) and 13(4) oftheAct, 2002. "13. F£nforcement of security interest. - (1) Notwithstanding anything . contained in section 69 or section 69A of the Transfer of PrQperty Act, 1882 (4 of 1882), any security interest created in favour of anysecured 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 tb a secured creditor under a securtty agreement, makes any defauit 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 ali or any ofthe rights under sub-section (4). .•^.fe3^ ^'^w ^ %2»^-^ ^^^s^ ^ ^' (3)The notice referredto in syb-section (2) shall give details of the amount payabte by the borrower and the secured assets intended to enforced by the secured creditor in the event of non-payment of secured debts bythe borrower. (3A) If, on receipt of the notice under sub- section (2), the borrower makes any representation or raises any objection, th© secured creditor shall consider such representation or objection and if the secured creditor comes to the conelysion that such representation or objection is nGtacceptable or tenable, he shall commynicate within one week of receipt of such representation or objection the 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 shall not conferany right upon the borroy</er to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under Section 17A. (4)1n 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 securecl debt, namety ;- (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) takeoverthe management ofthe business of the borrower jncluding the right to transfer by way of lease, assignment or sa!e for realising the secured asset: Provided that the right to transfer by way of lease, assignmentor sale sh^ll be exercised only where the substantial part pf the business 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 husiness of the 1 '.A'v^. •^??^?^''71 n^^ ^' } ..i borrower which is relatable to the security or the debt; (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 securecl debt. ;12, The Supreme Court in A^arc//a Chemical Ltd. and others v. Union of India and othersv has observed as under: "45....... But communication of reasons not to accept the objections of the borrower, woulcl certainly be for the purpose of his knowiedge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort to harsh steps of taking over the management/ business of viz. secured assets without intervention ofthe Court. Such a person in respect ofwhom steps under Section 13(4) of the Act arelikely to be taken cannot be denied the right to knowthe reason of non-acceptance and of his objections. It is true, as per the provisions under the Act, he may not be entitled ' ', to challenge the reasonscommunicated or the likely action of the secured creditor at that point of time unless his right to approach the Debts Recovery Tribunal as provided under Section 17 oftheAct matures on any measure having been taken under sub-section (4) of Section 13 of the Act. 80. Under the Act in consideration, we fincl that before taking action a notice of 60 days is required to be given and after the measures under Section 13(4) ofthe Act have been taken, a mechanism has been provided under Section 17 of the Act to approach the Debts Recovery Tribunal. The abovenoted provisions are for the (2004) 2 SCC 311 -A '". 'Y' :"%^K- v} ~^:':^t.. .^ /.*' •/ f- l-^.--^ .^' "4.;.^^" \^ .r-l^ ^x. purpose of giving some reasonabte protection to the borrower. Viewing the matter in the abovc1 perspective, v\/e find what ernerges from different provisions ofthe 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 as 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 reasonsfor not accepting the objections, howsoever brief they may be, must be communi.cated to the borrower. In connection with this conctusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/ knowledge of the borrower without giving rise to the right to approach the Debts Recovery Tribunal under Section 17 of the. Act, at that stage". 13 the Supreme Court in Transcore v. Union of India and Anothe^' : held as under: "24..........A proviso is added to Section 13(3-A) which states thatthe reasons so communicated ^- shall not confer any right upon the borrower to file an application to DRT under Section 17. The scheme of sub-sections (2), (3) and (3-A) of Section 13 of the NPA Act shows that the notice under Section 13(2) is not merely a show-cause notice, it is a noticeof demand. That notice of demand is based on the footing that the debtor is under a liability and that his account in respect of such liability has become sub-standard, doubtful or a loss. The identification of debt and the cl.assification ofthe account as NPA is done in accordance with the guidelines issuedby RB\. Such notice of demand, therefore, constitutes an action taken underthe provisions ofthe NPA Act and such notice of dernand cannot be compared to a show-cause notice. In fact, because it is a notice of demand which constitutes an actjon. Section 13(3~A) provides for an oppdrtunity to 2 (2008) 1 SCC 125 1:0 '^ •^ ^ the borrower to make representation to the secured creditor. Sectioh 13(2) is a condition precedent to the invocation of Section 13(4) of the NPA Act by the bank/FI; Once, the two conditions under Sectioni 13(2) are fulfilled, the next step which the bahk;or Fl is entitled to take is either to take possession of the secured assets of the borrower or to take over management of the businessofthe borrower or to appoint any manager to manage the secured assets or require any person, who has acquired any of the secured assets from the borrower, to pay the secured creditor towards liquidation of the secured debt. 25. Reading theschemeof Section 13(2) with Section 13(4), it is clear that the notice under Section 13(2) is not a'mere show-cause notice and it constitutes an action taken by the bank/Ft forthe purposes of the NPAAct. "33. Section 17 of NPA Act confers right.to appea!. It inter alia states that any person including borrower, aggrieved by exercise Qf rights by the secured creditor under Section 13(4), may make an application to DRT as an appellate authority within forty-five days from the date on which action under Section 13(4) is taken. That application should be accompanied by payment of fees prescribed by the 2.002 Rules made under the NPA Act. A proviso is added to Section 17(1)by amending Act 30 of 2004, It states that different fees may be prescribed for making the application by the borrower and the personother than the borrower. By way of abundant caution, an explanation is added to Section 17(1) saying that the communication of the reasons to the borrower by the secured credjtor rejecting his representation shali not constitute a grouncl for appeal to DRT. However, under Section 17(2), the DRT is required to consider whether any of the measures referred to in Section 13(4)taken by the secured creditor for enforcement of securi.ty are in accordance with the provisions of the NPA Act and the Rules made thereunder. If DRT, .after examining the facts and circumstances of the case and the evjdenc.e produced by the parties, comes to the conclusion that any ofthe measures taken under Section 13(4) are not in accordance with the .^ NPA Act, it shall direct the secured creditor to restore the pflssession/management to fhe borrower (vide Section 17(3) of NPA Act). On the other hand, after DRT declares that the recourse taken by the secured creditor under Section 13(4) is in accordance with the provisions of the NPAAct then, notwithstandihg anything contained in any other |aw forthe time being in force, the secured creditor shall be entitled to take recourse to any one or more of the measures specified under Section 13(4) to recover his secyred debt; 66. We have alreadyanatysed the scheme of both the Aets. Basically, the NPA Act is enacted to enforce the interest in the financial assets whichbelongs to the bank/ Fl 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 the NPA Act is recovery by non-adjudicatory process. A secured asset under the NPA Act is an asset in which interest is createdby the borrower in favour ofthe bank/ Fl and on that basis aione the NPA Act seeks to enforce the security interest by non-adjudicatory process. Essentially, theNPA Act deals with the rights of thesecured 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 l.evel is the other obligation of the debtor. It is this other obligation whichinvites applicability of the NPA Act.It is for this reason,that Sections 13(1) and 13(2) ofthe NPA Act proceeds on the basis that security interest in the bank/FI; needs to be enforced expeditiously without the intervention of the court/tribunal; that liability of the borrower^has accrued and on account of defaultin repayment, the account of the borrower in. the books of the bank has become non-performing. For the above reasons, the NPA Act states that the enforcement could take place by non" adjudicatory process and that the said Act removes ail fetters under the above circumstances on the rights of the secured creditor." 12 15. w' 14. Subsequent to judgment \r\ Mardia Chemical Ltd. (supra) handed down by the Supreme Court sub-section (3A) of Section 13 of the Act, 2002 was inserted by Act 30 of 2004 w.e.f. 11-11-2004. Provisions of Section 13 (3A) cameinto consideration before the Supreme Court in 7'ranscore (supra). The Supreme Court considered the provisions of sub-section .(3A) of Section 13 of the Act, 2002 and held that a notice under Section 13 (2)is not merelya show-cause notice, but a notice of demand. Section 13 (3A) of the Act, 2002 provides for an opportunity to the borrower to make representation to the secured creditor. Section 13 (2) of the Act, 2002 is a condition precedent to the invocation of Section 13 (4) of the NPA Act by the Bank/ Financiallnstitution. 16. However, in the instant case the reply dated 5/5/2009 was submjtted by the petitioner, pursuant to the notice dated 21/3/2009 issued under Section 13 (2) of the Act, 2002, receipt of the same was refused by the Bank\ Thus, there was no Qccasion to consider the reply of the petitioner. Indisputably the reply to the notice under Section 13 (2) ofthe Act, 2002 was filed by the petitioner within a period of 60 days, which was not received by the respondent Bank. 17. Thus, provisions of sub-section (3A) of Section 13 of the Act, 2002, is a mandatory statutory provision, which was not complied with before taking recourse to provisions of Section 14 of the Act, 2002. It is indisputable that no order uncier the L- ^ -, ^ "• ^ 3 l.^-'.t^^ \''^w^^' 18.. / 19. 20. 21.. \M l<b provisions of Section 13 (4) of the Act, 2002 .has been passed till date. Section 13 (3A) of the Act, 2002 provides for a specific procedure, which cannot be permitted to be contravened.It is a trite law that if a statute requires t.o do a process in a particular way, the same must be done in thatway only. In this regard lam in r'espectful agreement with the view taken by the Division Bench of the Orissa High Court in Kmshna ChandrQ Sahoo v. Bank of India & Ors For the reasons stated hereinabove, the notice dated 21-3-2009 and the proceedings initiated by the respondent No.2 i.e. Distric-t Magistrate, Raipur, are quashed. The respondent Bank Is directed to decide the aforesaid objection, if any, filed by the petitioner within a period of ten days , and pass speaking and reasoned order and communicate the same to the petitjoner. Thereafter, it wouid be open to the respondent Bank to proceed further, in accordance with law In the result, the writ petition is allowed to the above extent.Mo order asto costs. AshoK Sd/- Satish K. Agnihotri Judge A.IR 2009 OF-ilSSA 35