AJN 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.1948 OF 2009 Sanjay Sukhanraj Jain ... Petitioner Vs. Central Bank of India & Ors. ... Respondents Mr. Mathews J. Nedumpara and Ms. Jaymala J. Ostwal for the petitioner. Mr. Mayur Khandeparkar with Ms. Sapana Rachure i/b T.N. Tripathi & Co. for respondent 1. CORAM: SMT. RANJANA DESAI & MRS. MRIDULA BHATKAR, JJ. DATED : 2ND DECEMBER, 2009. P.C.:- 1. In this petition filed under Article 226 of the Constitution of India, the petitioner has made the following prayers: “(a) That this Hon'ble Court be graciously pleased to issue a writ in the nature of certiorari or any other appropriate writ or order quashing and setting aside the order dated 14th July, 2009 (Exhibit “B” hereto) passed by the learned Chief AJN 2 Metropolitan Magistrate, Mumbai, allowing the application of the Respondent Bank Show under Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, as null and void being passed in gross violation of the doctrine of audi alteram partem; (b) That this Hon'ble Court be graciously pleased to issue an appropriate writ, be it in the nature of certiorari or any other appropriate writ, order or declaration, declaring that Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 is unconstitutional and void inasmuch as it permits the learned Chief Metropolitan Magistrate / District Magistrate to order dispossession of the property of a borrower / tenant or third party, whatsoever be his right, on a mere application at the hands of a Bank or Financial Institution, often a simple mortgage, without notice and without hearing him, and thus in violation of Articles 14, 19 and 21 of the Constitution of India or, in the alternative, and may be more appropriately, to read into the said Section an obligation to issue a notice and afford a hearing to the borrower / tenant or third party. (c) That this Hon'ble Court be graciously pleased to issue a writ in the nature of prohibition or any other appropriate writ or order prohibiting and restraining the Respondent No.1, 2, 4 and 5 from executing the order dated 14th July, 2009 AJN 3 (Exhibit “B” hereto) passed by the learned Chief Metropolitan Magistrate, Mumbai. (d) That this Hon'ble Court be graciously pleased to pass such further and other orders as the nature and circumstances of the case may require. 2. Respondent 1 i.e. Central Bank of India issued a notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (for short, “the NPA Act”) to the petitioner calling upon him to pay within sixty days from the date of receipt of the said notice a sum of Rs. 4,67,90,690.01 plus interest as on 12/9/2007. Thereafter, after following necessary procedure, respondent 1 made an application under Section 14 of the NPA Act. The Chief Metropolitan Magistrate, Esplanade Court, Mumbai by order dated 14/7/2009 allowed the application and the Assistant Registrar, Dadar Centre of Courts was directed to take possession of the secured assets. We are informed that pursuant to this order, on 1/10/2009, the petitioner was dispossessed. We are further informed by AJN 4 learned counsel for respondent 1 that the secured assets have been sold. A copy of the sale certificate dated 22/10/2009 to that effect has been tendered in this court by learned counsel for respondent 1. The said sale certificate is taken on record and marked “X”. Thus, not only the petitioner is dispossessed but the secured assets have been sold and third party interest has already been created. 3. We have already reproduced prayers made in this petition. In effect, the petitioner is aggrieved by the fact that he was not heard by learned Magistrate before passing order under Section 14 of the NPA Act. This issue has been settled by the judgment of this court, to which one of us (Smt. Ranjana Desai, J.) was a party, in M/s. Trade Well v. Indian Bank, 2007 (3) AIR Bom. R. 656 where following the judgment of the Supreme Court in M/s. Transcore v. Union of India & Anr. AIR 2007 SC 712 this court has taken a view that it is not necessary to give hearing to the borrower or to the third AJN 5 party before passing order under Section 14 of the NPA Act. The said judgment is entirely based on the judgment of the Supreme Court in Transcore. 4. In Transcore, the Supreme Court was considering, inter alia, whether recourse to take possession of the secured assets of the borrower in terms of section 13(4) of the NPA Act comprehends the power to take actual possession of the immoveable property. The Supreme Court considered the scheme of the NPA Act. It also analyzed the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, “the DRT Act”) and noted the reasons for enactment of the NPA Act as under: “The NPA Act, 2002 is enacted to regulate securitization and reconstruction of financial assets and enforcement of security interest and for matters connected therewith. The NPA Act enables the banks and financial institutions to realise long- term assets, manage problems of liquidity, asset liability mis-match and to improve recovery of debts by exercising powers to take possession of securities, sell them and AJN 6 thereby reduce non-performing assets by adopting measures for recovery and reconstruction. The NPA Act further provides for setting up of asset reconstruction companies which are empowered to take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale. The said Act also empowers the said asset reconstruction companies to take over the management of the business of the borrower.” 5. The Supreme Court held, inter alia, that there is no dichotomy between the symbolic and the physical possession. We may quote the gist of the relevant portion from the Supreme Court judgment. “(a) The DRT Act did not provide for assignment of debts to securitization companies. The secured assets could not be liquidated in time. The NPA Act was enacted to reduce mounting non- performing assets by empowering banks to liquidate the assets and secured interest. (b) The NPA Act deals with crystallized liabilities. (c) The NPA Act proceeds on the basis that the asset is created in favour of bank which could be assigned to the assets AJN 7 management company which steps into the shoes of the secured creditors. (d) Section 13(2) proceeds on the basis that the borrower is under a liability and his account in the books of account of the bank is classified as sub-standard or doubtful or loss. The NPA Act comes into force only if these two conditions are satisfied. (e) Since section 13(2) deals with liquidation of liability on the basis that the account of the borrower has become non-performing, there is no scope of any dispute regarding liability. (f) The NPA Act does not deal with disputes between the secured creditors and the borrowers but it deals with the rights of the secured creditors interse. (g) Section 13(1) and Section 13(2) of the NPA Act proceed on the basis that the security interest in the bank and financial institution needs to be enforced expeditiously without the intervention of the Court and that enforcement could take place by non- adjudicatory process. The NPA Act provides for recovery of possession by non-adjudicatory process. (h) The NPA Act removes all fetters on the right of the secured creditor. (i) Under section 17(2), the DRT is required to consider whether any of the measures referred to in section 13(4) are in accordance with the provisions of AJN 8 the NPA Act and the Rules made thereunder. (j) If while examining the application under section 17, the DRT comes to the conclusion that any of the measures taken under section 13(4) are not in accordance with NPA Act, it shall direct the secured creditor to restore the possession to the borrower or restore management to the borrower. (k) If the DRT declares that the recourse taken under section 13(4) is in accordance with the provisions of the NPA Act then notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to anyone or more of the measures as specified under section 13(4) to recover his secured debt. (l) Section 17(4) shows that the secured creditor is free to take recourse to any one of the measures under section 13(4) notwithstanding anything contained in any other law for the time being in force, e.g. for the sake of argument if in a given case, the measures undertaken by the secured creditor under section 13(4) come in conflict with the State land revenue law, then notwithstanding such conflict, the provision of section 13(4) shall override the local law. (m) This position stands clarified by section 35 of the NPA Act which states that the provisions of the NPA Act shall override AJN 9 all other laws which are inconsistent with the NPA Act. Section 35 gives an overriding effect to the NPA Act over all other laws, if they are in consistent with it. (n) The dichotomy between symbolic and physical possession does not find place in the NPA Act. (o) Rule 8 of the said Rules deals with the sale of immoveable secured assets. Rule 8 deals with the stage anterior to the issuance of sale certificate and delivery of possession under Rule 9. Rule 9 relates to time of sale, issue of sale certificate and delivery of possession. Till the time of issuance of sale certificate, the authorised officer is like a court receiver under Order XL, Rule 1 of the CPC. The court receiver can take symbolic possession and in appropriate cases, he can take actual possession even prior to the decree. The authorised officer's powers are greater as security interest is already created in the bank. Hence, under Rule 8, he can take steps to preserve the secured asset till issuance of the sale certificate under Rule 9. Rule 9(6) states that on confirmation of sale, if the terms of payment are complied with, the authorised officer shall issue a sale certificate in favour of the purchaser. Rule 9(9) states that the authorised officer shall deliver the property to the buyer free from all encumbrances known to the secured creditor or not known to the secured creditor. This scheme of the NPA Act AJN 10 therefore does not disclose any dichotomy between symbolic possession and physical possession. (p) Since scheme of section 13(4) read with section 17(3) shows that if the borrower is dispossessed not in accordance with the provisions of the NPA Act, the DRT is entitled to restore status quo ante, it cannot be said that if possession is taken before confirmation of sale, the rights of the borrower to get the dispute adjudicated upon is defeated by the authorised officer taking possession. (q) The disputes which are sought to be avoided by Rule 8 read with Rule 9 of the said Rules are those where third party interests are created overnight and in very many cases those third parties take up the defence of being a bonafide purchaser for value without notice.” 6. Following the judgment of the Supreme Court in Transcore, this court in Trade Well has drawn the following conclusions: “1. The bank or financial institution shall, before making an application under section 14 of the NPA Act, verify and confirm that notice under section 13(2) of the NPA Act is given and that the secured asset falls within the jurisdiction of CMM/DM before whom application under AJN 11 section 14 is made. The bank and financial institution shall also consider before approaching CMM/DM for an order under section 14 of the NPA Act, whether section 31 of the NPA Act excludes the application of sections 13 and 14 thereof to the case on hand. 2. CMM/DM acting under section 14 of the NPA Act is not required to give notice either to the borrower or to the 3rd party. 3. He has to only verify from the bank or financial institution whether notice under section 13(2) of the NPA Act is given or not and whether the secured assets fall within his jurisdiction. There is no adjudication of any kind at that stage. 4. It is only if the above conditions are not fulfilled that the CMM/DM can refuse to pass an order under section 14 of the NPA Act by recording that the above conditions are not fulfilled. If these two conditions are fulfilled, he cannot refuse to pass an order under section 14. 5. Remedy provided under section 17 of the NPA Act is available to the borrower as well as the third party. 6. Remedy provided under section 17 is an efficacious alternative remedy available to the third party as well as to the borrower where all grievances can be raised. 7. In view of the fact that efficacious alternative remedy is available to the borrower as well as to the third party, AJN 12 ordinarily, writ petition under Articles 226 and 227 of the Constitution of India should not be entertained. 8. In exceptional cases of gravest injustice, a writ petition could be entertained by this court. 9. Great care and caution must be exercised while entertaining a writ petition because in a given case it may result in frustrating the object of the NPA Act. 10. Even if a writ petition is entertained, as far as possible, the parties should be relegated to the remedy provided under section 17 of the NPA Act before the DRT by passing an interim order which will protect the secured assets. Adjudication and final order should be left to the DRT as far as possible.” 7. We must, at this stage, state that similar view has been taken by the Karnataka High Court in Sunanda Kumari (Smt.) & Anr. v. Standard Chartered Bank, Bangalore, 2007 (1) Debts Recovery Tribunal Cases (PT-III) Vol.7, 719. The Division Bench of the Karnataka High Court, which was presided over by Cyriac Joseph, C.J. (as His Lordship then was), has also taken a view that in the absence of any provision in the NPA Act or rules framed thereunder requiring any notice to be given to the AJN 13 borrower before passing an order under Section 14 of the NPA Act, the Magistrate is not required to issue any such notice to the borrower. 8. In view of the above, the petitioner cannot agitate before this court that hearing ought to have been given to him before passing order under Section 14 of the NPA Act. When this court pointed out this to learned counsel for the petitioner and he was told that his remedy is not before this court, he insisted on going on with this matter. We, therefore, patiently heard him for 35 minutes so that no grievance should be made that he was not given a proper hearing. Once having taken a view that hearing is not to be given to the borrower before passing an order under Section 14 of the NPA Act, it is not possible for us to entertain this petition. 9. We must note that learned counsel for the petitioner has submitted that Section 13(2) of the NPA Act is unconstitutional. However, there is no prayer made in the AJN 14 petition that it be declared that Section 13(2) of the NPA Act is ultra vires or unconstitutional. The prayer is about Section 14 of the NPA Act. In any case, we must note that the validity of the NPA Act has been upheld by the Supreme Court in Mardia Chemicals Limited v. Union of India, AIR 2004 SC 2371, and, therefore, it is not possible for us to entertain this petition. 10. Besides, as we have already stated the secured assets have already been sold and third party rights have been created. Now the remedy, if any, of the petitioner is under Section 17 of the NPA Act. Hence, the petition is dismissed. [SMT. RANJANA DESAI, J.] [SMT. MRIDULA BHATKAR, J.]