THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 22.08.2007 + WP(C) No.1508/2007 SHRI RAJAN GUPTA ...Petitioner - versus - BANK OF INDIA AND ANOTHER ...Respondents With WP(C) No.1592/2007 ASHA SINGLA ...Petitioner - versus - BANK OF INDIA AND ANOTHER ...Respondents And WP(C) No.23014/2005 KAMAL GUPTA ...Petitioner - versus - BANK OF INDIA ...Respondent Advocates who appeared in this case: For the Petitioners : Mr A.K. Singla, Sr Advocate with Mr Pankaj Gupta and Ms Promila Dhar For the Respondents : Ms Manjula Gandhi with Ms Neeru Sharma CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED WP(C)1508/07, 1592/07 & 23014/05 Page No.1 of 25 1. Whether Reporters of local papers may be allowed to see the judgment ? Yes 2. To be referred to the Reporter or not ? Yes 3. Whether the judgment should be reported in Digest ? Yes BADAR DURREZ AHMED, J 1. These three petitions raise common issues and were, therefore, heard together and are being disposed of by this common judgment. The issue is with regard to the meaning of the word “borrower” as appearing in Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'the said Act'). 2. According to the petitioners, the word “borrower” as appearing in the said Section 13 (2) and as defined in Section 2 (f) of the said Act cannot extend and does not extend to include legal representatives of the original borrower. According to them, the expression relates only to the persons who took the loan or who were guarantors for the loan. It does not extend to their heirs or successors or legal representatives. WP(C)1508/07, 1592/07 & 23014/05 Page No.2 of 25 3. On the other hand, the learned counsel for the respondents contends that the expression “borrower” not only includes the persons who originally took the loan or the persons who originally stood guarantee, but also their legal representatives and heirs. 4. The present controversy is in connection with financial assistance to the extent of Rs 650 lacs taken by ROM Industries Limited from the respondent [Bank of India] for opening import letters of credit. One Smt. Parvati Devi, amongst others, stood guarantee for the said financial assistance. She also allegedly created an equitable mortgage in respect of her immovable property situated at 16/73, Punjabi Bagh, New Delhi. In October, 1996, the account of M/s ROM Industries Ltd was declared as a Non-Performing Asset (NPA) by the Bank of India. On 19.08.2000, the said Smt. Parvati Devi passed away. In November, 2003, the Bank of India filed a recovery application [OA 91/2003] in respect of the said loan before the Debts Recovery Tribunal. Although, Smt. Parvati Devi had already expired on the date on which the said application was filed, she was named as a party. Subsequently, on 04.12.2003, an amendment was sought to implead her legal representatives which include her son [Girdhari Lal Gupta] and daughter WP(C)1508/07, 1592/07 & 23014/05 Page No.3 of 25 [Asha Singla] amongst others. The said Girdhari Lal Gupta also passed away on 02.05.2004 and his legal representatives which include Kamal Gupta and Rajan Gupta were substituted. The said Kamal Gupta and Rajan Gupta are the sons of Late Shri Girdhari Lal Gupta. The present writ petitions have been filed by the said Asha Singla, Kamal Gupta and Rajan Gupta who are all legal representatives, directly or indirectly, of Late Smt. Parvati Devi. On 05.10.2005, the respondent [Bank of India] also issued notices under Section 13 (2) of the said Act against, inter alia, the petitioners in their capacity as legal heirs of Smt. Parvati Devi. Since these petitions are essentially directed against the issuance of the said notice dated 05.10.2005 and the invocation of provisions of Section 13 (2) of the said Act, it would be appropriate if the relevant portions of the said notice are set out:- “NOTICE U/S 13(2) OF THE SECUTITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 You are aware that the Bank had granted various credit facilities to the following firms / company for which Late Smt. Parvati Devi stood as guarantor. The details of the various credit facilities granted by the Bank and the amounts outstanding dues thereunder as on the date of notice are as under:- 1. M/s Rom Industries Ltd WP(C)1508/07, 1592/07 & 23014/05 Page No.4 of 25 Nature of Facility Sanctioned Limit (Rs.) Outstanding Dues (Rs.) Import L/C 650 lacs 22,54,05,668.20 2. You are further aware that Late Smt. Parbati Devi had executed various Letters of Guarantee guaranteeing the due repayment of the amounts mentioned therein by the Principal Debtor and all interest, costs, charges and expenses due and accruing thereon. 3. You are further aware that Late Smt. Parbati Devi had undertaken liability under the various Letters of Guarantee for repayment of the aforesaid limits granted by the Bank to the aforesaid firm / company i.e. Principal Debtor and that she had secured the repayment of the aforesaid limits by creating in favour of the Bank an equitable mortgage of the property belonging to her situate at 16/73 Punjabi Bagh, New Delhi-110026. 4. As the aforesaid Principal Debtor had defaulted in repayment of their liabilities the bank has classified their dues in above said account as Non-Performing Asset in October 1996 in accordance with the directions / guidelines issued by the Reserve Bank of India. 5. We may inform you that in spite of repeated demands / requests for repayment of the amount due to the Bank, the aforesaid Principal Debtor have so far not paid the same. You, therefore, as the legal heirs of Late Smt. Parbati Devi have become liable to pay the aforesaid dues. 6. For the reasons stated above, we hereby give you notice U/S 13 (2) of the above noted Act and call upon you to discharge in full your liabilities to the Bank by paying to the Bank Rs.225405668.20 (contractual dues upon the date of notice) with interest @ 17.50% on C/D account No.10085 with WP(C)1508/07, 1592/07 & 23014/05 Page No.5 of 25 quarterly rests within a period of 60 days from the date of notice, failing which we will entirely at your risks as to costs and consequences exercise all or any of the powers under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, against the secured assets mentioned above. xxxx xxxx xxxx xxxx xxxx” The notice speaks of letters of guarantee executed by Late Smt. Parvati Devi as also the equitable mortgage created by her in respect of her property at 16/73, Punjabi Bagh, New Delhi as a security for repayment of the limits extended by the respondent. Significantly, the notice calls upon the petitioners, amongst others, in their capacity as legal heirs of Late Smt. Parvati Devi. 5. Before the relevant provisions of the said Act are examined, it would be necessary to also refer to two other documents. The first is the guarantee document in respect of the letters of credit. The said guarantee document was executed on 22.09.1995, jointly and severally, by, inter alia, Late Smt. Parvati Devi. Clauses (3) and (7) of the said guarantee are relevant and read as under:- “(3) This guarantee shall be a continuing security to you, and shall not be determined except at the expiration of three calendar months' written WP(C)1508/07, 1592/07 & 23014/05 Page No.6 of 25 notice given to you of intention so to do by each of us or his legal representatives and in the event of the death of any one or more of us or any one or more of us coming under a disability, the liability of the survivor or survivors and the legal representatives of the person or persons so dying or coming under any disability and of the estate of any of us so dying or coming under disability shall continue under the expiration of three calendar months' notice in writing given to you of the intention of such survivors or survivor and legal representatives to determine the guarantee. xxxx xxxx xxxx xxxx xxxx (7) In the event of this guarantee being determined either by notice by us or the survivors or survivor of us and the legal representatives of any of us who shall have died or be under a disability or by demand in writing by the Bank, it shall be lawful for the Bank to continue the account with the Opener, notwithstanding such determination, and the liability of us or of our respective estates for the amount due from the Opener at the date when the guarantee is so determined shall remain, notwithstanding any subsequent payment into the account by or on behalf of the Opener. PROVIDED ALWAYS that the total amount which we shall be liable to pay under this guarantee shall not exceed Rs.6,50,00,000/-.” Clause (3) makes it clear that the guarantee was a continuing one and that it could not be determined by the guarantors except by giving a notice in writing by each of them, three calendar months prior to the date of termination. If a guarantor died, his / her legal representative would continue to be under a liability for the duration of the three-months WP(C)1508/07, 1592/07 & 23014/05 Page No.7 of 25 notice period, if such a notice had been given by the guarantor during his lifetime. Clause (7) indicates that the guarantee could only be determined either by notice by the guarantors or the survivors and the legal representatives of any of the guarantors who may have died or may be under a disability or by a demand being made by the bank in writing. Even where the guarantee is determined either by the guarantors or by the bank, the liability of the guarantors or of their respective estates for the amount due from the principal debtor at the date when the guarantee was determined, would remain. So, in terms of the guarantee itself, the death of Smt. Parvati Devi would not absolve her estate or her legal representatives who come upon her estate of the liability under the guarantee. 6. The second document of importance is the indemnity bond executed on 23.10.1996 by Smt. Parvati Devi. The said document carries the following recital:- “WHEREAS Smt. Parvati Devi has created equitable mortgage of her absolute property bearing No.16/73, Punjabi Bagh, ND with Bank of India, Industrial Finance Branch, New Delhi.” The indemnity bond was given by Smt. Parvati Devi as the sale deed dated 31.07.1968 in favour of the person from whom she had purchased WP(C)1508/07, 1592/07 & 23014/05 Page No.8 of 25 the property was not available with her. The sale deed dated 28.06.1971 in her favour was deposited with the bank for creating an equitable mortgage. This is apparent from the following extract from the said indemnity bond:- “Mrs Parbati Devi has deposited original sale deed dated 28th June, 1971 in favour of herself, a site plan of the property in question and latest Municipal Tax Receipts in favour of herself with the bank for the purpose of creating equitable mortgage with Bank of India for securing advance granted to M/s ROM Industries Limited by Bank of India.” 7. Consequently, it could be safe to infer that Smt. Parvati Devi had a dual relationship with the Bank of India. She was one of the guarantors under the Letter of Guarantee and she was also a mortgagor under the equitable mortgage. With this background, the relevant provisions of the said Act may now be examined. 8. Section 13 (2) of the said Act reads as under:- “13. Enforcement of security interest.— (1) xxxx xxxx xxxx xxxx (2) 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 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 WP(C)1508/07, 1592/07 & 23014/05 Page No.9 of 25 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 all or any of the rights under sub-section (4). xxxx xxxx xxxx xxxx” By virtue of the above provision, a secured creditor has been empowered to require a “borrower”, by a notice in writing, to discharge in full his liabilities to the secured creditor within 60 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) of Section 13 of the said Act. The question that arises is what is meant by the word “borrower” appearing in the above provision. Section 2 (f) defines “borrower” in the following manner:- “2. Definitions.—(1) In this Act, unless the context otherwise requires,— xxxx xxxx xxxx xxxx xxxx (f) “borrower” means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance; WP(C)1508/07, 1592/07 & 23014/05 Page No.10 of 25 xxxx xxxx xxxx xxxx xxxx” 9. It is apparent that the definition comprises of two parts. The first part follows the word “means” and the second part follows the words “and includes”. Insofar as the first part is concerned, the word “borrower” has reference to:- (1) any person who has been granted financial assistance by any bank or financial institution; or (2) any person who has given any guarantee; or (3) any person who has created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution. The second part of the definition is an inclusive definition and brings within the ambit of the word “borrower”, a person who becomes a borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interests of any bank or financial institution in relation to such financial assistance. This part of the definition, which is apparently based on the principle of subrogation, is not attracted in the present case and, therefore, does not WP(C)1508/07, 1592/07 & 23014/05 Page No.11 of 25 call for any further elaboration. As already mentioned above, the learned counsel for the petitioner had submitted that the expression “borrower” can only mean a person who has been granted financial assistance by any bank or financial institution or a person who has given any guarantee or created any mortgage or pledge as security for the said financial assistance. It was contended that it has reference only to the original person who took the loan or other financial assistance or the original person who gave a guarantee or created any mortgage or pledge as security for the said loan or financial assistance. 10. A further submission was made on behalf of the petitioners that Late Smt. Parvati Devi died on 19.08.2000. On that date, the said Act was not in force. It was submitted that the Act was preceded by an Ordinance which came into force on 22.08.2002. The Act itself came into effect on 17.12.2002. The Act was not retrospective and, therefore, since no notice could have been issued to Smt. Parvati Devi who originally stood guarantee and / or mortgaged the property in question, therefore, no notice could be issued to her legal heirs / legal representatives. This submission does not call for any separate treatment. The reason being that if the petitioners are not covered by the WP(C)1508/07, 1592/07 & 23014/05 Page No.12 of 25 expression 'borrower' as appearing in Section 13 (2) of the said Act then, no notice could have been issued to them under that provision. On the other hand, if they are covered under the expression 'borrower' then, it matters little whether the said Act had come into force prior or after the death of Smt. Parvati Devi. So, the real and only question is – are the petitioners “borrowers” as contemplated under Section 13 (2) of the said Act ? 11. Mr Singla, the learned counsel appearing on behalf of the petitioner, placed reliance on a decision of the Supreme Court in the case of P. Kasilingam and Others v. P.S.G. College of Technology and Others: 1995 Supp (2) SCC 348 for the purposes of explaining as to what is meant by a “means and includes” definition. The Supreme Court, while construing Rule 2 (b) of the Tamil Nadu Private Colleges (Regulation) Rules, 1976, repelled the argument that the expression “means and includes” appearing in the said rule, indicated that the definition was inclusive in nature and also covered categories which are not expressly mentioned therein. The question which was before the Supreme Court was whether the expression “private college or colleges” WP(C)1508/07, 1592/07 & 23014/05 Page No.13 of 25 included professional and technical colleges which are not specifically mentioned in the definition. The supreme Court observed as under:- “A particular expression is often defined by the Legislature by using the word 'means' or the word 'includes'. Sometimes the words 'means and includes' are used. The use of the word 'means' indicates that “definition is a hard-and-fast definition, and no other meaning can be assigned to the expression than is put down in definition”. (See: Gough v. Gough: 1891 (2) QB 665: 60 LJ QB 726; Punjab Land Development and Reclamation Corpn. Ltd. v. Presiding Officer, Labour Court: 1990 (3) SCC 682, 717: 1991 SCC (L&S) 71.) The word 'includes' when used, enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall include. The words “means and includes”, on the other hand, indicate “an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to those words or expressions”. [See: Dilworth v. Commissioner of Stamps: 1899 AC 99, 105-106: (1895-9) All ER Rep Ext 1576 (Lord Watson); Mahalakshmi Oil Mills v. State of A.P.: 1989 (1) SCC 164, 169: 1989 SCC (Tax) 56] The use of the words “means and includes” in Rule 2 (b) would, therefore, suggest that the definition of 'college' is intended to be exhaustive and not extensive and would cover only the educational institutions falling in the categories specified in Rule 2 (b) and other educational institutions are not comprehended.” 13. In the light of the aforesaid, it was submitted that the definition of “borrower” has to be construed as being exhaustive and not extensive. Therefore, the expression “borrower” specifically refers to a WP(C)1508/07, 1592/07 & 23014/05 Page No.14 of 25 person who has been granted financial assistance by a bank or financial institution or to a person who has given a guarantee or created any mortgage or pledge as security for the said financial assistance granted by a bank or a financial institution. But, as pointed out earlier, this case is not concerned with the second part of the definition following the words “and includes” which, in any event, only extends the definition to a “borrower” of a securitisation company or reconstruction company which acquires the rights or interests of any bank or financial institution in relation to such financial assistance. The Supreme Court decision in P. Kasilingam (supra) is not of much help to the petitioners. Since we are only concerned with the first part of the definition following the word 'means', it can be taken that the word 'borrower' has been exhaustively defined. 14. On behalf of the respondent, it was contended that the expression “borrower” as employed in Section 13 (2) of the said Act includes legal heirs / legal representatives of the original “borrower”. A reference was made to the definitions of “secured debt” and “secured interest” as given in Section 2 (ze) and Section 2 (zf). The same read as under:- WP(C)1508/07, 1592/07 & 23014/05 Page No.15 of 25 “2. Definitions.—(1) In this Act, unless the context otherwise requires,— xxxx xxxx xxxx xxxx xxxx (ze) “secured debt” means a debt which is secured by any security interest ; (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 ; xxxx xxxx xxxx xxxx xxxx ” 15. It was contended that “secured debt” means a debt which is secured by any security interest. In turn, “security interest” means a right, title or 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. Advancing the argument a little further, the learned counsel for the respondent submitted that security interest has reference to any right, title or interest upon a property and includes a mortgage. Late Smt. Parvati Devi had mortgaged her property. The petitioners are her heirs. Therefore, they have a right, title and interest in the mortgage and consequently, they would be covered under the expression “borrower”. WP(C)1508/07, 1592/07 & 23014/05 Page No.16 of 25 The learned counsel also referred to Section 59A of the Transfer of Property Act, 1882 which reads as under:- “59A. References to mortgagors and mortgagees to include persons deriving title from them.—Unless otherwise expressly provided, references in this Chapter to mortgagors and mortgagees shall be deemed to include references to persons deriving title from them respectively.” The learned counsel for the respondent referred to the case of Samarendra Nath Sinha and Another v. Krishna Kumar Nag: AIR 1967 SC 1440 wherein the Supreme Court observed in para 16 thereof that under Section 59A of the Transfer of Property Act, 1882 also, all persons who derive title from the mortgagor are included in the term “mortgagor” and are, therefore, entitled to redeem. 16. It was also contended by the learned counsel for the respondent that while interpreting a provision of a particular statute, the purpose of the statute must be kept in mind. The said Act had been enacted for the purposes of removing all hurdles faced by the banks and financial institutions for recovering their dues. Therefore, the expression “borrower” ought to be construed to include even the legal heirs / legal representatives of the original borrower. She also referred to the WP(C)1508/07, 1592/07 & 23014/05 Page No.17 of 25 decision of the Supreme Court in the case of M/s Associated Indem Mechanical (P) Ltd v. West Bengal S.S.I.D.C. Ltd & Others: AIR 2007 SC 788, wherein the Supreme Court observed that it is well-settled that the word “include” is generally used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute and that when it is so used, those words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. The learned counsel for the respondent then referred to the decision of a single Judge of the Gujarat High Court in the case of Makboolhusen Razakmiya Maniyar & Another v. Bank of Baroda & Others: AIR 2006 Guj. 244. She also referred to the decision of the Supreme Court in the case of National Insurance Co. Ltd. v. Laxmi Narain Dhut: AIR 2007 SC 1563 where the Supreme Court held that the provisions of a statute must be given purposive construction. 17. Now, the word “borrower” as used in Section 13 (2) of the said Act is further qualified by the