2006 (10) TMI 235 - HC - Companies Law

Summary

Issues Involved:
1. Interpretation of Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
2. Duty of the bank to consider borrower's objections raised in reply to the notice under Section 13(2).
3. Availability of remedies to the borrower under the Act.
4. Jurisdiction of the High Court under Article 227 of the Constitution of India.

Issue 1: Interpretation of Section 13(2) of the Act
The case involved a dispute where the respondent had advanced a loan to the petitioners, who failed to repay despite a notice issued under Section 13(2) of the Act. The Chief Metropolitan Magistrate appointed an Advocate Commissioner to take possession of the property. The petitioners contended that the bank concealed the fact that they had replied to the statutory notice. The court noted that under the Act, the borrower has the right to reply to the notice, and the creditor must consider these objections before taking drastic measures under Section 13(4). The court emphasized the importance of communication of reasons for not accepting the objections raised by the borrower, as it ensures fairness and allows the borrower to understand the decision-making process.

Issue 2: Duty of the bank to consider borrower's objections
The court referred to the Supreme Court decision in Mardia Chemicals Ltd. v. Union of India, emphasizing that the bank has a duty to consider the objections raised by the borrower in response to the notice under Section 13(2) of the Act. It highlighted the need for the creditor to communicate reasons for not accepting the objections, providing transparency and allowing the borrower to comprehend the decision-making process. Failure to communicate reasons may lead to challenges before the Debt Recovery Tribunal under Section 17 of the Act.

Issue 3: Availability of remedies to the borrower
The court noted that the petitioners failed to exhaust the remedy available to them, which was to file an appeal before the Debt Recovery Tribunal. Instead of following the proper procedure, the petitioners invoked Article 227 of the Constitution of India, which the court deemed as not sustainable in law. The judgment emphasized the importance of availing the appropriate remedies provided under the Act before approaching the High Court under Article 227.

Issue 4: Jurisdiction of the High Court under Article 227
After considering the facts, arguments, and relevant legal provisions, the court found no merit in the petitioners' case. It concluded that invoking Article 227 without availing the proper remedy before the Debt Recovery Tribunal was not sustainable. The Civil Revision was dismissed with costs imposed on the petitioners. The judgment highlighted the limitations of invoking Article 227 and the importance of following the prescribed legal procedures for seeking redressal under the Act.