Case: Auth.Offr.,Indian Overseas Bank  Vs. M/S.Ashok Saw Mill

2. The respondent firm and its sister concern, M/s. Ashok Woodworks, which is also a partnership firm, availed of various loans from the appellant Bank which were secured by movable and immovable assets. The loanee firms having defaulted in repayment of the loans and since their accounts became Non Performing Assets (hereinafter referred to as `NPA), the Bank initiated action against them under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as `the SARFAESI Act) and issued separate demand notices to the respondent partnership firm and its sister concern under Section 13(2) thereof on 17th September, 2002, and 21st September, 2002, for the recovery of Rs.1,56,47,638/and Rs.1,40,18,468.36, respectively.3. As the respondent and its sister concern did not respond to the said demand notices, the appellant Bank invoked Section 13(4) of the above Act and took possession of the secured assets on 4th December, 2002. The said action of the Bank, as also the vires of the SARFAESI Act, were challenged by the respondent partnership firm and its sister concern by way of two separate writ petitions, being Writ Petition Nos.46328 and 46329 of 2002, in which an interim stay of all further proceedings under the said Act was granted on 27th December, 2002. The said writ petitions were ultimately heard and dismissed by a common order on 23rd April, 2004, with liberty to the respondent firm to approach the Debts Recovery Tribunal (hereinafter referred to as `the DRT), within 30 days. Since, despite such liberty, the respondent firm did not approach the DRT, the Bank took a decision to sell the secured assets of the respondent firm. At that stage, negotiations were held between the parties for a One-Time Settlement, which also failed, causing the Bank to issue a sale notice dated 26th July, 2007, inviting sealed tenders for the sale of the secured assets of the firm. The same was challenged by the respondent firm on 18th August, 2007, in Writ Petition No.27472 of 2007 on the ground that it was unable to move the DRT in view of the expiry of the period of limitation prescribed under the Act. After hearing the parties, the High Court refused to grant any interim relief and posted the writ petition for final disposal.4. During the pendency of the said writ petition, the respondent firm, along with M/s. Ashok Woodworks, filed SARFAESI Application No.74 of 2007 before the Debts Recovery Tribunal at Madurai for setting aside the sale notice dated 26th July, 2007, on the selfsame cause of action. Despite being informed of the pendency of the writ petition for the selfsame reliefs, the said Tribunal by its order dated 7th September, 2007, directed the Bank to defer the proposed sale which was scheduled to be held on 7th September, 2007. The appellant Bank thereupon filed Civil Writ Petition No.1392 of 2007 before the Madurai Bench of the Madras High Court challenging the filing of S.A. No.74 of 2007. The same was admitted and all proceedings in S.A. No.74 of 2007 were stayed. The said writ petition came up for hearing before the High Court on 18th September, 2007, and was disposed of in the absence of the counsel for the Bank with liberty to the respondent firm to move the Debts Recovery Tribunal at Madurai. The appellant Bank filed Review Petition No.165 of 2007, praying for recall of the order dated 18th September, 2007, by which the writ petition had been disposed of in its absence. On 6th October, 2007, the appellant Bank was permitted to open the sealed tenders which it had received pursuant to the sale notice dated 26th July, 2007, subject to the condition that the sale effected would be subject to the confirmation of the Court. Pursuant to the said order, the sealed tenders were opened on 8th October, 2007, and 3 of the 5 properties were sold and the same was recorded by the DRT. Subsequently, despite the pendency of the review petition, the respondent firm withdrew S.A. No.74 of 2007, and filed a fresh application being S.A. No. 104 of 2007. The review petition filed by the Bank before the Madurai Bench of the Madras High Court was consequently rendered infructuous and was dismissed on 23rd June, 2008.5. Aggrieved by the said order, the Bank filed Writ Appeal No.926 of 2008, which was dismissed by the Division Bench of the High Court on 1st September, 2008, against which the present appeal has been

Reasoning: 22. In order to prevent misuse of such wide powers and to prevent prejudice being caused to a borrower on account of an error on the part of the Banks or Financial Institutions, certain checks and balances have been introduced in Section 17 which allow any person, including the borrower, aggrieved by any of the measures referred to in Sub-Section (4) of Section 13 taken by the secured creditor, to make an application to the DRT having jurisdiction in the matter within 45 days from the date of such measures having taken for the reliefs indicated in Sub-Section (3) thereof.23. The intention of the legislature is, therefore, clear that while the Banks and Financial Institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee. The consequences of the authority vested in DRT under Sub-Section (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(4) of the Act. The Legislature by including Sub-Section (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. Resultantly, the submissions advanced by Mr. Gopalan and Mr. Altaf Ahmed that the DRT has no jurisdiction to deal with a post 13(4) situation, cannot be accepted. The dichotomy in the views expressed by the Bombay High Court and the Madras high Court has, in fact, been resolved to some extent in the Mardia Chemicals Ltd.s case (supra) itself and also by virtue of the amendments effected to Sections 13 and 17 of the principal Act. The liberty given by the learned Single Judge to the appellants to resist S.A.No.104 of 2007 preferred by the respondents before the DRT on all aspects was duly upheld by the Division Bench of the High Court and there is no reason for this Court to interfere with the same.24. We are unable to agree with or accept the submissions made on behalf of the appellants that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under Section 13(4) of the Act. On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of Section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT.25. The other point regarding the maintainability of the appeal against the review petition, is of little consequence since the appeal was preferred by the appellants themselves. Having invoked the jurisdiction of the Appellate Court, it was no longer open to the appellants to take a contrary view and to urge that such appeal was not maintainable having been filed against an order passed in a review petition.