IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE SIXTEENTH DAY OF JUNE TWO THOUSAND AND NINE PRESENT THE HON'BLE MR JUSTICE GHULAM MOHAMMED and THE HON'BLE MR JUSTICE VILAS V. AFZULPURKAR WRIT PETITION NO : 8748 of 2007 Between: 1 M/s. Venkateswara Hosuing Private Limited, rep byits Chairman & Managing Director, Karanam Lakshmi narasimha Rao S/o Kondaiah aged about 51 years 11-1-73, Sri balaji house, Near Jinna Tower, Station Road, Guntur. 2 Karanam Lakshmi narasimha Rao S/o Kondaiah R/o AP 148, 3rd Main Road, Anna Nagar, Chenni-600 040 ..... PETITIONER(S) AND 1 Authorisd Officer, State bank of India, Industrial Estate Branch, Guntur. 2 M/s. Vasudha Cloth Emporium, repbyits Prop: Kandru Venkata Subba Rao D. No. 4-13/4/A, Naidupeta, Amaravathi Road, Guntur. 3 Smt. Gorijala Padmaja W/o Venkateswara Rao R/o D. No. 4-5-4/8/c, Sri bharathi Nivas, 3rd Line, Navabharatnagar, Ring Road, Guntur. 4 J. Nageswara Rao Advocte, 5th Lane 14/15, Cross Road, Brodipet, Guntur-522 002. .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to issue a Writ, order or direction preferablyin the nature of writ of Mandamus declaring the action of the 1st respondnet inissuing notice Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 dt 12-3-2007 and refusing to furnish the information on the advice of the 4th respondnet inthe letter dated 13-04-2007 in collusion with the respondents No.2 & 3 as arbitrary, illegal and unsustainable and further direct the 1st respondent to refrain frominitiating any further action under Section 13 of Securitisation act and pass such other order as may be just and proper. Counsel for the Petitioner: MR.K.JAYA KUMAR Counsel for the Respondents: MR.DEEPAK BHATTACHARJEE The Court made the following : THE HON’BLE SRI JUSTICE GHULAM MOHAMMED AND THE HON’BLE SRI JUSTICE VILAS V. AFZULPURKAR W.P.No. 8748 of 2007 ORDER: (Hon’ble Sri Justice Ghulam Mohammed) 1. This writ petition is filed assailing the notice dated 12.3.2007 under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the Act”) as arbitrary, illegal and unsustainable and seeking a direction to the 1st respondent-bank to refrain themselves from initiating any further action under Section 13 of the Act. 2. The 1st petitioner is a private limited company registered under the Indian Companies Act, 1956. The petitioners stood guarantee for the loan secured by the 2nd respondent. A publication was made by the 1st respondent in Eenadu Guntur Edition dated 13.3.2007 notifying the demand notice under Section 13 (2) of the Act, which is challenged in this writ petition. The petitioners allege that the said demand notice was issued at the instance of 3rd respondent in which it is stated that the respondents 2 and 3 have failed to pay an amount of Rs.8,43,414/- which was due as on 30.4.2004 and as the notices dated 8.1.2007 were not served on the borrower, the demand notice dated 13.3.2007 was issued as per the guidelines of Reserve Bank of India. It is also stated in the said notice that the account of the 2nd respondent was treated as non- performing asset and a demand was made to the borrowers to pay the amount within 60 days from the date of publication of notice. The 1st petitioner had issued legal notices to the respondent No.1 on 21.3.2007 and 30.3.2007 to supply documents which were necessary for giving explanation to the impugned demand notice. The 1st respondent had given a reply on 24.3.2007 stating that the bank has filed a suit against the respondents and guarantors before a civil court and that the bank was under no obligation to furnish the copies of documents as required by the petitioners. The petitioners allege that without giving the information sought for by them, the 1st respondent-bank was contemplating to proceed further and pass orders under Section 13 (4) of the Act. 3. However, during the pendency of this writ petition, the 1st respondent passed orders and issued possession notice of immovable property on 18.5.2007 in terms of Section 13 (4) of the Act read with Rule 8 of the Security Interest (Enforcement) Rules, 2002 (for short “the Rules”) which is also challenged by the petitioners by filing an amendment petition vide WPMP No. 14774 of 2007. 4. The learned counsel for the petitioners contends that no notice under Section 13 (2) of the Act was served on the petitioners and such a notice was only issued to the borrower and as per Rule 3 (2) of the Rules the 1st respondent had to serve the demand notice on the registered office of the borrower or any of the branches of such body corporate and as such the entire proceedings are contrary to Rule 3 (3) of the Rules which mandates that the authorized officer of bank shall serve notice on the borrower or his agent who is authorized in this behalf. He contends that since the 1st petitioner is the guarantor and no notice was issued to him, the 1st respondent could not proceed against the properties of the petitioners. 5. Respondent No.1 has filed a detailed counter along with material papers. The learned counsel for the respondent No.1 contends that Rule 3 (2) cannot be read in isolation and it should be read along with Rule 3 (3) of the Rules and according to him, notice under Section 13 (2) of the Act was served on the agent of the petitioner who is the guarantor K. Srinivas which was in accordance with the said Rule and the petitioners have also issued legal notices dated 21.3.2007 and 30.3.2007 acknowledging the receipt of the notice u/s. 13 (2) of the Act and requesting the 1st respondent to furnish them copies of certain documents to enable them to offer their explanation. He has drawn our attention to Rule 3 of the Rules which reads as under, “3 Demand Notice (1) The service of demand notice as referred to in Sub-section (2) of S.13 of the 6 Substituted for the word "Ordinance" by Security Interest (Enforcement) Amendment Rules, 2007, w.e.f. 02-02-2007.[Act] shall be made by delivering or transmitting at the place where the borrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works fur gain, by registered post with acknowledgement due, addressed to the borrower or his agent empowered to accept the service or by Speed Post or by courier or by any other means of transmission of documents like fax message or electronic mail service: Provided that where authorised officer has reason to believe that the borrower or his agent is avoiding the service of the notice or that for any other reason, the service can not be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality. (2) where the borrower is a body corporate, the demand notice shall be served on the registered office or any of the branches of such body corporate as specified under sub-rule (1). (3) Any other notice in writing to be served on the borrower or his agent by authorised officer, shall be served in the same manner us provided in this rule. (4) Where there are more than one borrower, the demand notice shall be served on each borrower.” 6. A plain reading of the above Rule clearly contemplates that the 1st respondent-bank shall serve the notice on the borrower or his agent and according to the 1st respondent, the notice was served on the agent of the petitioner No.1 who is a private limited company registered under the Companies Act, 1956 and the petitioners have also given a legal notice to the 1st respondent requesting them to furnish certain documents. We have also perused the definition of ‘borrower’ given in Section 2 (f) of the Act which includes guarantor. Section 2 (f) of the Act reads as under, “2. (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;” (emphasis supplied) 7. After the demand notice under Section 13 (2) of the Act dated 12.3.2007 was issued by the 1st respondent-bank, the petitioners, through their counsel, gave a legal notice dated 21.3.2007 requiring certain documents. That legal notice was replied to by the bank under their lawyer’s reply notice dated 24.3.2007 and once again another legal notice dated 30.3.2007 was issued by the petitioners’ counsel seeking documents again. Under the letter of the bank dated 13.4.2007 the said legal notice was also replied to by the bank stating that they were under no obligation to furnish the required documents. Thereafter the petitioners had issued further legal notice dated 11.4.2007 whereunder they called upon the bank to issue notice to borrowers and recover the loan amount from them, as they are the persons who enjoyed the loan. In view of the above, the contention that the petitioners have not been given any notice under Section 13 (2) of the Act and thereby there is infraction of the provisions under the Act, is liable to be rejected. 8. The learned counsel for the petitioners has, however, raised further contention that notice issued under Section 13 (4) of the Act during the pendency of this writ petition which is challenged by amending the prayer in the writ petition, is also not sustainable as in terms of Rule 8 of the Rules the said notice has also not been served on the petitioners and the learned counsel for the petitioners has tried to demonstrate that the address of the petitioners mentioned in the said notice itself is incorrect. It is evident from the proceedings of this Court dated 11.6.2007 that after admitting the writ petition this Court had passed an interim order directing status quo as obtaining on 11.6.2007 to be maintained regarding nature and possession of the property in question. The said order is in operative even now. Keeping in view the limited grievance of the petitioners, we deem it just and appropriate to dispose of this writ petition with the following direction, 9. The 1st respondent-bank is directed to serve the order passed by it under Section 13 (4) of the Act on the petitioners and thereafter the petitioners shall be at liberty to challenge the legality or validity of the said order in accordance with law. It cannot be disputed that after the order under Section 13 (4) is served upon the petitioners, they would have remedy of appeal in terms of Section 17 of the Act and agitate all their contentions in such appeal, if preferred. The writ petition is accordingly disposed of. No order as to costs. 10. WPMP No. 14774 of 2007 is ordered and WPMP Nos. 14775 of 2007 and 28811 of 2007 are dismissed. _____________________________ JUSTICE GHULAM MOHAMMED ________________________________ JUSTICE VILAS V. AFZULPURKAR Dt. 16.6.2009 KR ..... REGISTRAR // TRUE COPY // SECTION OFFICER To 1) 2 CD copies Form-NIC-OGS/WP{TRT}