2006 (11) TMI 338 - HC - Companies Law

Summary

Issues Involved:
1. Requirement of notice under section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 before invoking section 14.

Issue-wise Detailed Analysis:

1. Requirement of Notice Under Section 13(4):
The primary issue in this writ appeal is whether a notice needs to be issued under section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 before invoking section 14. The judgment under appeal held that there is a statutory requirement to issue a notice under section 13(4) before invoking section 14.

The appellant's counsel argued that the Act does not contemplate the issuance of another notice under section 13(4) before taking possession of the security interest. The only notice required is under section 13(2), which gives the borrower 60 days to regularize his account, failing which the financial institution can take action under section 13(4).

The court referred to the Supreme Court's decision in Mardia Chemicals v. Union of India, which clarified that the purpose of serving a notice under section 13(2) is to allow the borrower to explain why measures should not be taken under section 13(4). The creditor must consider the objections raised in response to the notice meaningfully rather than ritualistically rejecting them and proceeding with drastic measures under section 13(4). The Supreme Court emphasized the importance of fairness and transparency in the dealings between banks and borrowers.

The court concluded that the intention of the creditor to proceed against the assets is expressed only once through the notice under section 13(2). There is no requirement for another notice under section 13(4). The rejection of objections does not give the borrower an occasion to resort to proceedings not permissible under the Act. The borrower can challenge the action only after measures under section 13(4) have been taken.

The court also referred to the case of Digivision Electronics Ltd. v. Indian Bank, which indicated that after the notice under section 13(2) and consideration of objections, there is no intermediate notice under section 13(4). Challenges to notices under sections 13(2) and 13(4) were rejected based on the availability of alternative remedies.

The court reiterated the principle that the judiciary should not amend or supplement the language of a statute unless the legislative intent is clear. The words of the section and the law laid down in Mardia Chemicals do not envisage a notice under section 13(4). The fairness required of the lender is to communicate reasons for not accepting objections before taking measures like taking possession of secured assets.

The court emphasized that possessing drastic powers calls for a higher degree of good faith and fair play from financial institutions. The directions given by the Supreme Court in Mardia Chemicals have been incorporated as section 3A, which requires the secured creditor to communicate reasons for non-acceptance of objections within one week of receipt.

In conclusion, the court allowed the writ appeal and set aside the direction to issue a prior notice under section 13(4) of the Act. There was no order as to costs, and the related application was closed.