Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 17.03.2016
% Pronounced on: 11.05.2016
+ LPA 699/2015
AGARWAL TRACOM PVT LTD ..... Appellant
Through Mr.Abhirajit Mitra, Sr.Advocate with
Mr.Surjadipta Seth, Mr.Ajit Sharma
& Mr.Satadeep Bhattacharya,
Advocates
versus
PUNJAB NATIONAL BANK & ORS ..... Respondents
Through Mr.Hasmat Nabi, Advocate
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE JAYANT NATH
JAYANT NATH, J.
1. The present appeal is filed seeking to impugn the judgment of the
learned Single Judge dated 1.9.2015 by which the Writ Petition was
dismissed holding that the appellant has an alternate efficacious remedy of
approaching the Debt Recovery Tribunal under section 17(1) of The
Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (hereinafter referred to as “SARFAESI Act”).
2. The brief relevant facts as stated which led to filing of the Writ
Petition are that the borrower M/s.India Iron and Steel Corporation Limited
had its factory on plot of land measuring Khasra No.116, 117, 119 and 153,
village Noorpur Khirki and Khasra No.40, 41 min.42 village Faridnagar,
Tehsil Dhampur, District Bijnor, Uttar Pradesh and the plant and machinery
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therein at the premise. The said property was mortgaged by the borrower
with the respondent bank for obtaining financial facilities. On account of
defaults committed by the borrower the respondent bank initiated
appropriate proceedings under the provisions of SARFAESI Act, 2002. A
sale notice was issued on 17.5.2014 about sale/auction of the property and
the Plant and Machinery on 17.6.2014. The reserve sale price of the
mortgaged immoveable property was fixed at Rs.4.15 crores and the reserve
sale price of hypothecated goods was fixed at 12.06 crores. The total price
was Rs.16.26 crores. The appellant participated in the auction. Before
participation it deposited Rs.1.62 crores towards 10% of the minimum
reserve price. The appellant was declared as the single highest bidder as no
other bids were received by the bank. Pursuant to letter of acceptance, the
appellant paid the balance of 15% being Rs.2,44,50,000/-. The appellant
entered into an MOU on 18.6.2014 with respondent bank by which 75% of
the balance sale price being Rs.12,19,50,000/- was payable by the appellant
to the respondent bank within 120 days i.e. by 15.10.2014. The appellant is
stated to have given 4 post dated cheques each of Rs.3,04,87,500/- to be
encashed on 17.7.2014, 16.8.2014, 15.9.2014 and lastly on 15.10.2014.
Certain steps were taken by the appellant pursuant to the MOU i.e.
dismantling of the plant and machinery for the purpose of selling of scrap
after depositing equivalent amount.
3. In the meantime, the borrower commenced legal proceedings before
Debt Recovery Tribunal, Lucknow. These were dismissed by DRT Lucknow
on 26.9.2014, It appears that the borrower thereafter also filed proceedings
before DRAT, Allahabad and the Allahabad High Court. The full details of
the proceedings are not relevant for the purpose of adjudication of the issue
LPA No. 699/2015 Page 2 of 14
raised in the present appeal. It appears that certain disputes arose between
the appellant and the respondent bank on account of which on 26.6.2015 and
7.7.2015 the respondent bank issued a letter intimating the appellant that the
auction confirmed in his favour stood cancelled in view of non-payment of
the balance 75% consideration amount. The appellant has raised various
pleas stating that the respondent bank acted in breach of the agreed terms,
failed to issue sale certificate in respect of 975 MT of scrap material etc. It is
also the grievance of the appellant that despite the auction sale being
cancelled by the respondent bank, the respondent bank has not refunded the
admitted amount of Rs.1.62 crores lying with the respondent bank. Hence,
the present Writ Petition was filed seeking directions to the respondent to
refund the said money.
4. The learned Single Judge by the impugned order relying upon the
judgment of the Supreme Court in United Bank of India vs. Satyawati
Tondon and Others, (2010) 8 SCC 110, held that the appellant is covered
by the expression “any person” used in Section 17 of SARFAESI Act and
has an alternative and efficacious remedy of approaching the DRT and
initiating appropriate proceedings against the respondent seeking the same
relief. Accordingly, the Writ Petition was dismissed.
5. We have heard the learned senior counsel for the appellant and the
learned counsel for the respondents. Learned senior counsel appearing for
the appellant has strenuously relied upon judgments of the Division Bench
of Bombay High Court in Umang Sugars Pvt.Ltd. vs. State of Maharashtra
& Anr., 2014(4) MH.L.J 113, and of the learned Single Judge of Madras
High Court in Chemstar Chemicals & Intermediates (P) Ltd. vs. The
Commercial Tax Officer, Purasawalkam, Assessment Circle, 2010 (6)
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CTC 635 to contend that in the present factual scenario no appeal lies under
section 17 of the SARFAESI Act and hence the appellant does not have an
alternative remedy. It was urged that an appeal can be filed by any person
aggrieved by any measure referred to in section 13(4) of the Act whereas the
auction proceedings of a secured asset is not a subject covered under section
13(4) of the Act.
6. Learned counsel appearing for the respondent bank has relied upon
judgment of the Supreme Court in United Bank of India vs. Satyawati
Tondon and Others (supra), to contend that the appellant could approach
the DRT in terms of section 17 of the Act. He also relied upon the judgment
of the Supreme Court in Jagdish Singh vs. Heeralal and Others, 2014 1
SCC 479 to support his contention.
7. We may first have a look at Section 17(1) of the SARFAESI Act
which provides for a right of appeal. Same reads as follows:-
“17. Right to appeal (1) Any person (including borrower),
aggrieved by any of the measures referred to in sub-section (4)
of section 13 taken by the secured creditor or his authorised
officer under this Chapter, may make an application alongwith
such fee, as may be prescribed to the Debts Recovery Tribunal
having jurisdiction in the matter within forty-five days from
the date on which such measure had been taken”
8. Section 13(4) of the Act reads as follows:-
“13. Enforcement of security interest
(4) In case the borrower fails to discharge his liability in full
within the period specified in sub-section (2), the secured
creditor may take recourse to one or more of the following
measures to recover his secured debt, namely:--
LPA No. 699/2015 Page 4 of 14
(a) take possession of the secured assets of the borrower
including the right to transfer by way of lease, assignment or
sale for realising the secured asset;
(b) take over the management of the business of the borrower
including the right to transfer by way of lease, assignment or
sale for realising the secured asset: PROVIDED that the right
to transfer by way of lease, assignment or sale shall be
exercised only where the substantial part of the business of the
borrower is held as security for the debt: PROVIDED
FURTHER that where the management of whole of the
business or part of the business is severable, the secured
creditor shall take over the management of such business of
the borrower which is relatable to the security or the debt.
(c) appoint any person (hereafter referred to as the manager),
to manage the secured assets the possession of which has been
taken over by the secured creditor;
(d) require at any time by notice in writing, any person who
has acquired any of the secured assets from the borrower and
from whom any money is due or may become due to the
borrower, to pay the secured creditor, so much of the money
as is sufficient to pay the secured debt.”
9. Reference may also be had to the Section ousting jurisdiction of Civil
Courts i.e. Section 34 of the SARFAESI Act which reads as follows:-
“34. Civil Court not to have jurisdiction : No civil court shall
have jurisdiction to entertain any suit or proceeding in respect
of any matter which a Debts Recovery Tribunal or the
Appellate Tribunal is empowered by or under this Act to
determine and no injunction shall be granted by any court or
other authority in respect of any action taken or to be taken in
pursuance of any power conferred by or under this Act or under
the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 (51 of 1993)”.
10. There is a difference of the opinion in the judgments of various High
Courts on the issue namely as to whether an auction purchaser in an auction
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sale conducted by a secured creditor of the secured assets, if aggrieved by
any step could file an appeal under Section 17(1) of the Act before the DRT
or that he would have to approach the civil court.
11. We may first have a look at the judgment relied upon by the learned
senior counsel for the appellant of the Bombay High Court in Umang
Sugars Pvt.Ltd. vs. State of Maharashtra (supra). The High Court held as
follows:-
“24. In order to consider the objections raised by respondent
No. 2, with due circumspection, it is necessary to consider the
phraseology used in Section 13(4) of the SARFAESI Act. It
begins with a clarification pertaining to the failure on the part
of the borrower to discharge his liability in full within a
specified period which gives rise to a right and remedy to the
secured creditor to initiate measures to recover the secured debt
as per sub clauses (a) to (d). In our view, the petitioner in the
instant case has raised a limited issue to the extent of
recovering the E.M.D. and to withdraw from the tender
proceedings. The petitioner is a bidder and is naturally neither a
borrower nor a secured creditor.
…
34. We have given a close look to the phraseology of
Section 13(4) of the SARFAESI Act. Section 13(4) clearly
appears to be a provision meant only for the secured creditor to
take recourse to one or more of the measures mentioned in sub
clauses (a) to (d). As such, we are of the view that measures
initiated u/s. 13(4) by M/s. Uttam (an unsecured creditor)
cannot be termed to be the measures initiated by a secured
creditor. As such, though for the purposes u/s. 17 (Right to
appeal) of the SARFAESI Act, the petitioner is presumed to
fall within the meaning of 'any person', it can not be held to be
aggrieved by the appeal filed by M/s. Uttam. Our view is
fortified by the phraseology of Section 17 as well in light of the
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words 'any of the measures referred to in s/s 4 of
Section 13 taken by the secured creditor'. As such, in our
considered view, the petitioner would not have an alternate
remedy of right to appeal u/s.17.”
12. To the same effect, is the other judgment relied upon by the learned
senior counsel for the appellant of the learned Single Judge of the Madras
High Court in Chemstar Chemicals & Intermediates (P) Ltd. vs. The
Commercial Tax Officer, Purasawalkam, Assessment Circle (supra). In
that case the court held that the relief sought therein was not against any
measure taken under section 13(4) of the Act. The petitioner was a third
party who had participated in an auction held in pursuance of action taken
under Section 13(4) of SARFAESI Act and is not a person aggrieved against
action taken under section 13(4) of the Act and no appeal lies under Section
17(1) of the Act.
13. A similar view has also been taken by learned Single Judge of the
Guwahati High Court in Rose Valley Real Estate and Construction Ltd. v.
United Commercial Bank Ltd. Anr., AIR 2008 Guwahati 38 and the
Division Bench of the Karnatka High Court in R.Venkatpati v. Bank of
India, AIR 2014, Karnataka 33 .
14. However, a Division Bench of the Madras High Court in ICICI Bank
Ltd. v. Mr.P.Veerendar Chordia (2010) 4 MAD LJ
261/(MANU/TN/3790/2010) took a different view. The facts of that case
were that the Bank after taking over the property, which was a secured asset,
put the same for sale. The bank accepted the offer of the purchaser and
agreed to sell the property under a private treaty/agreement. A dispute arose
between the parties and the purchaser filed an appropriate petition before the
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DRT under Section 17(1) of the SARFAESI Act seeking refund of the
forfeited amount of Rupees fifty lacs. The issue before Madras High Court
was as follows:
“10. ………1. Whether the Debts Recovery Tribunal-III,
Chennai has got jurisdiction and is right in entertaining the
appeal filed by the respondent/purchaser under Section 17(1) of
the SARFAESI Act?”
Relevant paras 14, 15 and 17 of the judgment read as follows:
“14. As per Rule 8(5) of the Security Interest (Enforcement)
Rules, 2002, the methods of sale of the immovable secured
assets include:
(a) by obtaining quotations from the persons dealing with
similar secured assets or otherwise interested in buying the
such assets; or
(b) by inviting tenders from the public;
(c) by holding public auction; or
(d) by private treaty.
15. Therefore, it follows that the sale of a secured asset by
private treaty as provided for under Rule 8(5)(d) of the Security
Interest (Enforcement) Rules, 2002 is a 'sale' within the
meaning of Section 13(4) of the SARFAESI Act. In the case on
hand, there is no dispute regarding the fact that the sale is a
private treaty, falling within the meaning of Rule 8(5)(d) of the
Security Interest (Enforcement) Rules, 2002 and under
Section 13(4) of the SARFAESI Act.
……..
17. Section 17(1) makes it abundantly clear that any person
(including borrower) aggrieved by any of the measures referred
to in Sub-section (4) of Section 13 taken by the secured
creditor or his authorised officer may make an application to
the Debs Recovery Tribunal. Therefore, not only the borrower
but any person who is aggrieved of the actions of the secured
creditor has recourse to appeal to the Debts Recovery Tribunal
under Section 17(1) of the SARFAESI Act. Since the
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Respondent, a third party to the loan transaction, has entered
into a Memorandum of Understanding with the secured
creditor/Bank for the purchase of the mortgaged property and
the order of forfeiture came to be passed against him by the
secured creditor/Bank, after having initiated the proceedings
under the SARFAESI Act and having agreed to sell the
property under private treaty, it will definitely fall within the
jurisdiction of Debts Recovery Tribunal being a 'sale' within
the meaning of Section 13(4) of the SARFAESI Act read with
Rule 8(5) of the Security Interest (Enforcement) Rules, 2002
and therefore, the Respondent is completely justified in
approaching the Debts Recovery Tribunal for redressal of his
grievance under Section 17(1) of the SARFAESI Act.
Therefore, the Debts Recovery Tribunal-III, Chennai is
completely within its jurisdiction in entertaining the appeal
filed by the Respondent/purchaser under Section 17(1) of the
SARFAESI Act. This point is answered accordingly.”
15. The issue is whether the action of the respondent bank in seeking to
sell the secured asset by a public auction or otherwise would be as per
section 13(4) of the SARFAESI Act. If so, whether any person other than
the borrower aggrieved by the sale process done by the bank would be
entitled to file an appeal before DRT under section 17(1) of the Act and be
ousted from approaching a civil court in terms of Section 34 of the Act.
16. For interpreting Section 13(4) of the Act, the three sections would
have to be read together, namely, Sections 13 (4), 17 (1) and 34 of the Act to
see whether an appeal lies under Section 17 (1) of the Act. We may for the
purpose of interpreting these provisions look at the “doctrine of purposive
advancement”. The purposive approach or the “modern principle in
construction” is an approach to statutory and constitutional interpretation
under which common law courts interpret an enactment (that is, a statute, a
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part of a statute, or a clause of a constitution) in light of the purpose for
which it was enacted. Purposive interpretation is exercised when the courts
utilize extraneous materials from the pre-enactment phase of legislation,
including early drafts, committee reports, etc. The Supreme Court explained
this approach in the case of Shri Ram Saha vs. State of West Bengal,
(2004) 11 SCC 497. In para 19 the Court stated as follows:-
“It is well-settled principle of interpretation that a statute is
to be interpreted on its plain reading; in the absence of any
doubt or difficulty arising out of such reading of a statute
defeating or frustrating the object and purpose of an
enactment, it must be read and understood by its plain
reading. However, in case of any difficulty or doubt arising
in interpreting a provision of an enactment, courts will
interpret such a provision keeping in mind the objects sought
to be achieved and the purpose intended to be served by such
a provision so as to advance the cause for which the
enactment is brought into force. If two interpretations are
possible, the one which promotes or favours the object of the
Act and purpose it serves, is to be preferred. At any rate, in
the guise of purposive interpretation, the courts cannot re-
write a statute. A purposive interpretation may permit a
reading of the provision consistent with the purpose and
object of the Act but the courts cannot legislate and enact the
provision either creating or taking away substantial rights by
stretching or straining a piece of legislation.”
The above rule of interpretation was also noted by the Supreme Court
in Sindhi Education Society & Anr. vs. Chief Secretary Govt. of NCT of
Delhi & ors., (2010) 8 SCC 49.
17. We may now look at the objects for which the SARFAESI Act was
enacted.
“Statement of Objects and Reasons :
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The financial sector has been one of the key drivers in India's
efforts to achieve success in rapidly developing its economy.
While the banking industry in India is progressively complying
with the international prudential norms and accounting
practices, there are certain areas in which the banking and
financial sector do not have a level playing field as compared
to other participants in the financial markets in the world.
There is no legal provision for facilitating securitisation of
financial assets of banks and financial institutions. Further,
unlike international banks, the banks and financial institutions
in India do not have power to take possession of securities and
sell them. Our existing legal framework relating to commercial
transactions has not kept pace with the changing commercial
practices and financial sector reforms. This has resulted in slow
pace of recovery of defaulting loans and mounting levels of
nonperforming assets of banks and financial institutions.
Narasimham Committee I and II and Andhyarujina Committee
constituted by the Central Government for the purpose of
examining banking sector reforms have considered the need for
changes in the legal system in respect of these areas. These
Committees, inter alia, have suggested enactment of a new
legislation for securitisation and empowering banks and
financial institutions to take possession of the securities and to
sell them without the intervention of the court. ……………
2. It is now proposed to replace the Ordinance by a Bill, which,
inter alia, contains provisions of the Ordinance to provide for—
xxx
(h) empowering banks and financial institutions to take
possession of securities given for financial assistance and sell
or lease the same or take over management in the event of
default, i.e. classification of the borrower's account as non-
performing asset in accordance with the directions given or
guidelines issued by the Reserve Bank of India from time to
time.”
LPA No. 699/2015 Page 11 of 14
18. Hence, the object was to overcome slow pace of recovery of
defaulting loans and mounting levels of non-performing assets of banks and
financial institutions. It was sought to provide a new legislation for
empowering the banks and financial institutions to take possession of the
securities and to sell them without the intervention of the Court.
19. The object of the said Statute was considered by the Supreme Court in
the case of United Bank of India vs. Satyawati Tondon and Others (supra).
The Supreme Court observed as follows:
“11. The Government of India accepted the recommendations
of the two Committees and that led to enactment of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (for short “the
SARFAESI Act”), which can be termed as one of the most
radical legislative measures taken by Parliament for ensuring
that dues of secured creditors including banks, financial
institutions are recovered from the defaulting borrowers
without any obstructions. For the first time, the secured
creditors have been empowered to take steps for recovery of
their dues without intervention of the courts or tribunal.”
20. To fulfill the objectives of the Act, Section 13(4) provides that in
case a borrower fails to discharge his liability in full, the secured creditor
may apart from other remedies, take possession of the secured assets
including right to transfer by way of lease, assignment or sale for realising
the secured asset. Hence, Section 13(4) of the Act that gives a right to a
secured creditor to transfer by sale the secured asset for realizing the secured
asset. The procedure to be followed for effecting sale of the secured asset is
provided under The Security Interest (Enforcement) Rules, 2002 which have
been framed in exercise of powers under section 38(1) and 38 (2) (b) read
LPA No. 699/2015 Page 12 of 14
with section 13(4), (10), (12) of the SARFAESI Act. In our opinion, this
right to transfer by way of sale etc. the secured asset would include all
ancillary and incidental matters pertaining to the sale. Hence, if an auction
purchaser has any grievance against the secured creditor on account of any
action taken by the secured creditor, the remedy of the auction purchaser
would be to approach DRT under section 17(1) of the Act. He would be
covered by the phrase “Any person” as used in Section 17(1) of the Act.
21. The Supreme Court in the case of United Bank of India vs. Satyawati
Tandon and Others (supra) held that the expression “any person” used in
Section 17 (1) of the Act is of vide import and takes within its fold not only
the borrower or the guarantor or any other person who may be affected by
the action taken under Section 13 (4) or Section 14.
22. The above interpretation would also ensure that the specialized
Tribunal as per the Act, namely, the DRT would continue to handle the
entire proceedings relating to the secured asset starting from taking over
possession of the asset from the defaulter till actual sale etc. of the secured
asset and realization of the proceeds to be adjusted against the dues of the
banks/financial institutions. Any other interpretation of the statutory
provisions would lead to an anomalous situation where proceedings
pertaining to taking over of the secured assets would be dealt with by a
specialized Tribunal, namely DRT and the subsequent stage, namely sale
etc. of the secured assets would be dealt with by a civil court.
The above interpretation would also be as per the object of the Act
which sought to provide for recovery of dues of the banks/financial
institutions without intervention of the courts in a speedy manner.
LPA No. 699/2015 Page 13 of 14
23. The above view would also follow from the judgment of the Supreme
Court in the case of Pegasus Assets Reconstruction P.Ltd. vs. Haryana
Concast Limited and Ors., AIR 2016 SC 494/MANU/SC/1489/2015 where
the Supreme Court held that the SARFAESI Act is a complete code. The
Court also held as follows:-
“25. The aforesaid view commends itself to us also because of
clear intention of the Parliament expressed in Section 13 of the
SARFAESI Act that a secured creditor has the right to enforce its
security interest without the intervention of the court or
tribunal ………...”
24. Accordingly, we concur with the view taken by the Division Bench of
the Madras High Court in the case of ICICI Bank Ltd. v. Mr.P.Veerendar
Chordia (supra).
25. We agree with the conclusions of the learned Single Judge that the
appellants have an efficacious alternative remedy of approaching DRT under
section 17(1) of the SARFAESI Act. Accordingly, we dismiss the present
appeal. All applications are also dismissed.
(JAYANT NATH)
JUDGE
CHIEF JUSTICE
MAY 11, 2016
n
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