THE HON’BLE SRI JUSTICE P.S.NARAYANA W.P.No.8654 of 2006 Dated: 28.01.2008 Between: M/s. Matha Electronics, rep. by its sole Prop. Sri T. Satish Goud And another. ..Petitioners. and Union of India, rep. by its Secretary, Ministry of Finance, Banking Division, North Block, New Delhi and others. ..Respondents. THE HON’BLE SRI JUSTICE P.S.NARAYANA W.P.No. 8654 of 2006 ORDER: Heard Sri P. Krishna Reddy, learned counsel representing the petitioners and Sri K. Suryanarayana, the counsel representing the banking institution, respondents 2 & 3. 2. This writ petition is filed praying for a writ of mandamus declaring the action of the respondents in forcibly evicting the petitioners from the house bearing door No.16-5-315, Under Bridge Road, Warangal, as illegal and without jurisdiction and further direct the respondents 1 to 3 to consider the case of the petitioners for one time settlement. 3. It is stated by the petitioners that the petitioners had been doing business sincerely and the 2nd petitioner had been maintaining the accounts properly and the same can be verified from the accounts of the 3rd respondent. It is also stated that to the surprise of the 1st petitioner, the bank authorities without any notice locked his premises on 05.09.2002. Not only his premises but also his sister concern M/s. Vishnu Electronics, which is having account with the respondent bank since 1985. Finally after paying some amounts, the bank removed the locks. Due to illegal and unauthorized action of the bank, he suffered irreparable loss and hardship and his carrier is ruined. Due to his hard work and sincerity, the business had grown up leaps and bounds. But unfortunately for the reasons best known, the bank started creating troubles to him. He reliably learnt that the locking of his business premises also is at the behest of his rivals in the business. It is stated that he is not authorized to lock his premises under any provisions of law or any authority from his superiors. 4. It is further stated that while the matter stood thus, the 2nd respondent had sent the notice dated.30.01.2003 informing him that due to non submission of stock/financial statement, no stock maintenance, non depositing of sale proceeds, the account had been classified as ‘non-performing asset’ as per Reserve Bank of India guidelines and calling upon him to pay the full amount with further interest on the contracted rate until payment in full within 60 days from the date of notice. It is stated in the notice that in default, besides exercising other rights of the Bank available under law, the Bank is intending to exercise any or all of the powers as provided under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (hereinafter referred to as ‘the Act’). It is stated that evidently the said notice, even though no clause is mentioned, it might be under clause 13(2) of the Act. It is stated that the notice is illegal and without jurisdiction. 5. It is also stated that for the purpose of invoking provisions of the Act certain guidelines are prescribed under Clause 13(2) of the Act. Action can be taken only under the following circumstances:- “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 installment 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 credit 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).” It is stated that “Non performing Asset” as defined under Clause 2(o) is as follows:- “Non-performing asset” means an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classifications issued by the Reserve Bank.” 6. According to the reserve Bank Guidelines, as Asset when in respect of loan amount if an amount is over due for a period of more than 180 days from the due date, the account should be classified as ‘Sub-standard asset’. If an account is treated as sub- standard asset it will become ‘Non-performing asset’. After 18 months it will be classified as doubtful asset and subsequently, it will become as loss asset. All these things will happen only when any loan amount was due to be paid on a particular day and if it is not paid on that day it will become non performing assets. Hence, the question of invoking provisions of Clause 13(2) or 13(4) does not arise in his case. It is clear from the facts stated above that the respondents had not declared his account as ‘Non performing asset’ before issuing the notice as no default was committed in payment of any amount due on any particular day. Hence, the action is illegal. 7. Further, it is stated that the brother of the second petitioner, Prop. Of Vishnu Electronics tried to settle the accounts as one time settlement, but till date matter is not yet settled. To their surprise, the M.R.O.Warangal along with revenue Inspector came to their house two days back i.e., 21.04.2006 and told his mother i.e., 2nd petitioner to vacate the premises or otherwise they will forcibly vacate the premises. 8. It is also stated that the bank authorities have locked the premises without any reason. Under such circumstances, the first petitioner filed a suit for damages. The M.R.O. also conducted enquiry and opined that he is a pauper. 9. It is further stated that the 3rd respondent bank is taking different coercive steps against the petitioners as well as its sister concerned Vishnu Electronics. Against Vishnu Electronics the Bank filed O.A. before the Debt Recovery Tribunal and sought for sale of the house property also. Against the 1st petitioner, the bank is resorting steps under the Act. The petitioners are left to with this house property only. If the respondents highhandedly evict the petitioners, the petitioners will be on the road. 10. It is also stated that the respondents ought to have seen that the notice said to be under Section 13(2) of the Act issued on 30.01.2003. Subsequently, there is no transaction between the petitioner company and the bank, except for compromise and settle the accounts under one time settlement. It is also stated that the respondent ought to have seen that the schedule property, which the respondents want to evict the petitioners, is the subject matter of O.A.No.97 of 2005 before Debt Recovery Tribunal, Hyderabad, which is filed by the respondent bank against M/s. Vishnu Electronics. It is also stated that the respondents ought to have seen that as per Section 36 of the Act, no secured creditor shall be entitled to take all or any of the measures under Section 13(4) unless his claim in respect of financial asset is made within the period of limitation prescribed under the Limitation Act, 1963. 11. Several other further grounds also had been averred. 12. In the counter-affidavit filed by R2 & R3, in response to the averments in paras 3 & 4 of the affidavit, it is averred that it is true that the 1st petitioner was granted certain limits on 26.12.1996 viz., (i) Cash Credit (Hypothecation) for Rs.3 lakhs and (ii) CC (Pledge) limit of Rs.2 lakhs. Finally, the facilities by way of CC(H) was enhanced to Rs.10 lakhs. The 1st petitioner represented by its Proprietor executed necessary loan documents for availing the above facilities. It is stated that the facilities were granted to 1st petitioner on terms and conditions besides obtaining the collateral security of the house property bearing door No.16-5-315, situated at Under Bridge Road, Warangal District in Sy.No.144 of Fort Warangal, admeasuring 216.75 sq. yards belonging to the 2nd petitioner. The title deed of the said property was deposited with 3rd respondent Bank on 24.12.2006 and the Equitable Mortgage of the property was created on 26.12.1996 by 2nd petitioner. The further contention of the petitioners in the paras under reply, that the Bank authorities had locked the premises of 1st petitioner on 05.09.2002 and also the premises of their sister concern M/s.Vishnu Electronics, without any notice, is not true and correct is the same is not admitted by the petitioners. The other contention of the petitioners that their business had grown, leaps and bounds because of their hard work, but unfortunately the Bank had started creating troubles especially at the behest of the rivals of the petitioners and that the 3rd respondent Bank is not authorized to lock the premises under any provisions of law or by any authority from its superiors, is also not admitted to be true and correct. The petitioners are put to strict proof of their contentions in this regard. It is stated that the 1st petitioner had committed defaults from time to time in repayment of the loan as per agreed repayment schedule and in spite of several demand notices issued by the Bank from time to time, the petitioners had not responded favourably or made any attempts of regularizing its account. The petitioners had suppressed several material facts to the operation of their account. In view of the same, they cannot be heard to say that the 3rd respondent Bank had resorted to unauthorized action against them. 13. Further, in reply to the averments made in paras 5 to 8 of the affidavit, it is stated that it is true that the bank had issued notice dated 30.01.2003 to the petitioners herein under Section 13(2) of the Act, demanding them to pay the outstanding amounts of Rs.21,14,098.44 with future interest at the contracted rate within 60 days from the date of receipt of the notice, failing which, the Bank shall proceed further as per law under the above Act. It was also made clear to the petitioners in the said notice that their account was classified as ‘Non-performing asset’ as per RBI guidelines, in view of the petitioners failure to submit stock/financial statement, stock Maintenance Report, Non-Deposit of sale proceeds etc., In spite of receipt of the said notice, dated 30.01.2003, by the petitioners, sent under Courier service, the petitioners did not reply or respond in any manner. On the other hand, the notice sent to the petitioners under RPAD service, had returned unserved as ‘unclaimed’. This fact is not mentioned by the petitioners. As the petitioners did not respond to the above notices in spite of acknowledging the same, the 3rd respondent Bank had no other option, but to proceed further under the Act, by issuing notice under Section 13(4) of the Act. On 26.05.2005, for taking possession of the above mentioned Mortgage property. For this purpose, the 3rd respondent Bank had engaged the services of M/s. Asset Recovery Management Yard (P) Ltd., for assisting the authorized officer of the secured creditor for enforcement of the security interest. In the above said notice, dated 26.05.2005, the 3rd respondent Bank had made it clear to the petitioners, to deliver possession of the secured asset before 13.06.2005, failing which, the authorized officer of the Bank would take possession of the secured asset on or after 14.06.2005. It is submitted once again that the above notices sent under Section 13(4) of the Act also returned unserved with the postal endorsement ‘unclaimed’. In any event, it is submitted that the petitioners did not deliver possession of the property to 3rd respondent Bank. 14. It is averred that while it is clear that the petitioners had suppressed the above fact of issuance of relevant notices under the Act, their contention that the notices issued under Sections 13(2) and 13(4) of the Act are illegal and without jurisdiction, is without any basis and therefore untenable. Reproduction of Section 13(2) of the Act and other definitions etc., are not germane to the case. The contention of the petitioners that the application of either Section 13(2) or 13(4) of the Act does not arise to their case is simply misplaced. The further contention of the petitioners that the respondents herein had not declared their account as NPA before issuing the notice and therefore, the action is illegal is also unsustainable. It is stated that there is no system of declaring account as NPA in the Act. The account becomes NPA out of its own conduct and as defined as per the guidelines of the RBI. It is stated that the account became NPA even before the issuance of Section 13(2) notice. Therefore, the contentions of the petitioners are all false and without any basis. 15. Further, it is averred that it is pertinent to state that after Section 13(2) notice was issued to the petitioners, the 3rd respondent Bank was unable to proceed further in view the sister concern of petitioner No.1 viz., M/s. Vishnu Electronics having obtained some orders in its favour in a writ petition that was filed by it. Further, the Bank was also unable to proceed further with legal action since the mortgage property covered in the account of 1st petitioner herein was also one and the same in that of the account of M/s. Vishnu Electronics. Further, as the petitioners had also approached the 3rd respondent Bank for compromise, the 3rd respondent bank could not proceed further till 26.05.2005 whereas, it was constrained to proceed further for taking possession under the Act with the help of the Collector and District Magistrate in terms of the provisions of the Act. It is stated that the bank was under bonafide belief and trust that the petitioners would settle their accounts amicably and without any recourse to law. 16. Further, it is also averred that the 3rd respondent bank after issuing of the above notices to the petitioners and as there was no response from them either to these notices or to various personal contacts made by the bank, the 3rd respondent had to request, as per law, the Collector and District Magistrate, Warangal to take and deliver possession of the secured asset referred above under Section 14 of the Act. Responding to the request made by the 3rd respondent in its letter, dated 17.12.2005, to intervene under Section 14 of the above Act with the powers vested under it, the Collector and District Magistrate, Warangal, passed proceedings, dated 16.03.2006 in Proceedings No.A7/1405/2006 ordering and authorizing the M.R.O Warangal to take possession, within a week of the mortgaged properties and to handover the same to the Bank or its authorized agent. The M.R.O Warangal along with the Revenue Inspector, pursuant to the above orders of the Collector and District Magistrate, Warangal, went to the house of 2nd petitioner presumably on 20.04.2006 for taking possession of the property. It is stated that the petitioner requested the M.R.O. Warangal, to grant time till 30.04.2006 for compliance. The petitioners in the meanwhile approached the Court and filed the writ petition and obtained the interim orders. It is stated that the above action of the respondents herein is therefore well within law and is no way illegal or without jurisdiction, as alleged by the petitioners. In fact the petitioners have suppressed all these above facts in the writ petition. 17. Further, in reply to the various other contentions and allegations made by the petitioners in paras 9 to 20, it is averred that the various allegations and contentions made by the petitioners are either false or not germane to the issue involved. The reference of O.A.No.97 of 2005 pending before Debt Recovery Tribunal, Hyderabad, filed by the 3rd respondent Bank against M/s. Vishnu Electronics had nothing to do with the legal recourse taken by the bank against the 1st petitioner under the Act, notwithstanding the property mortgage is one and the same in both the accounts. The allegation of the petitioners that the respondents including these respondents have acted highhandedly and illegally and against principles of natural justice, are all false and denied. The petitioners are put to strict proof of the same. It is categorically denied that the Collector and the District Magistrate, Warangal or his subordinates had no jurisdiction in taking any action under the Act. On the other hand, it is stated that under Section 14 of the Act, the District Collector is empowered to take action as prescribed under the Act. The other contention of the petitioners that no notice is given to them by the 3rd respondent Bank before evicting them, is a false and baseless statement made by them in the light of the various facts and circumstances stated above. It is stated that the 3rd respondent Bank had followed due procedure of law under the Act and in no circumstances, it can be deemed to have violated the same as alleged by the petitioners. 18. Further averments also were made in denying the other allegations. It is also stated that the petitioners herein had approached respondent Nos. 3 & 4 from time to time for one time settlement of their outstandings. In the letter, dated 07.02.2004, of 1st petitioner, the petitioners came forward with a proposal to pay Rs.25 lakhs in full and final settlement of the outstandings both in the 1st petitioner’s account as well as in the account of its sister concern M/s. Vishnu Electronics. Thereafter, the petitioner sent another letter, dated 07.06.2004, reducing the offer from Rs.25 lakhs to Rs.22 lakhs subject to terms and conditions of their own. Again, the 1st petitioner in its letter, dated 04.10.2004, revised its compromise offer in both the accounts and offered to pay Rs.28 lakhs in full and final settlement. Referring to these proposals, the 2nd respondent advised the petitioners to improve the offer to at least Rs.55 lakhs as against the total outstandings at Rs.57.09 lakhs in both the accounts as on 30.06.2004. It is averred that the petitioners herein responding to the above advise of the bank, offered only Rs.30 lakhs as against the amount of Rs.55 lakhs as suggested by the bank. However, the petitioners did not agree to the suggestion of the bank and stuck its proposal for compromise at Rs.30 lakhs only as could be seen in their letter, dated 17.03.2005. It is averred that the petitioners were advised as “the compromise offer needs to be improved so as to minimize revenue loss”. However, the petitioners did not respond any further and the Bank’s various attempts to realize its outstanding dues failed. It is also averred that from the various negotiations made by the Bank with the petitioners, the 3rd respondent bank had found that further improvement was not feasible and the offers made by the petitioners were not acceptable and the higher-ups of the 3rd respondent Bank had advised the Bank to treat the compromise proposals as cancelled and to proceed under the Act. It is submitted that all these facts and material had not been pleaded by the petitioners and on the other hand the efforts made by the 3rd respondent Bank as per law are called in question. 19. Thus, it is stated that the writ petition is totally misconceived one. 20. In the light of the respective stands taken by the parties and the averments made in the affidavit in support of the writ petition and also the averments made in the counter-affidavit, this Court is satisfied that the writ petition cannot be maintained. However, liberty is given to the petitioners to pursue the other remedies available to them in law. Except making this observation, no positive relief as such can be granted in the present writ petition. 21. The Writ Petition is accordingly dismissed subject to the above observation. No costs. ________________ P.S.NARAYANA, J Dated: 28.01.2008 sj