2007 (9) TMI 408 - HC - Companies Law

Recourse to Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance 2002 - Whether the action of the respondents in proceeding under the Ordinance which had been repealed as illegal unconstitutional arbitrary and opposed to the principles of natural justice? Held that - As per section 17 of the Act if any person including the borrower is aggrieved by any of the measures taken under section 13(4) of the Act the Bank may prefer an Appeal by way of an application to Debts Recovery Tribunal and against the orders of the Tribunal there is further Appeal to Debts Recovery Appellate Tribunal under section 18 of the Act. Even though there are statutory remedies available under the Act the petitioners had not availed the same and straight away approached the Court under Article 226 of the Constitution of India and obtained interim stay. If the interim orders are continued and the Writ Petition is entertained the purpose of the Act will be defeated. In the light of the respective stands taken by the parties it is clear that the Ordinance as such was not in force as on the date of the impugned proceedings. In view of the same liberty is given to the respondents to further proceed with the matter in accordance with Law. With the above observation the writ Petition as disposed of. It is needless to say that the further proceedings if any in pursuance of the Ordinance cannot be further proceeded within the light of the liberty which is being given to the respondents in this regard. No order as to costs.

Issues:
1. Validity of action taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 (the Ordinance) after its repeal.
2. Jurisdiction of the Bank to issue possession notice under the corresponding provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Act).
3. Compliance with legal procedures and principles of natural justice in the recovery proceedings initiated by the Bank.
4. Availability and utilization of statutory remedies under the Act by the petitioners.
5. Maintaining the purpose and intent of the Act in dealing with non-performing assets.

Analysis:
1. The Writ Petition challenges the action of the Bank under the repealed Ordinance, arguing that the Bank's possession notice and demand for repayment were arbitrary and unconstitutional. The petitioners contend that the Bank's actions were illegal and violated natural justice principles. They highlight the differences between the Ordinance and the Act, emphasizing the lack of certain remedies under the former. The Bank, on the other hand, asserts that its actions were in compliance with the Act, even though the possession notice erroneously referred to the Ordinance instead of the Act. The Court acknowledges that the Ordinance was no longer in force during the proceedings, granting liberty to the Bank to proceed lawfully.

2. The Bank's position is that the possession notice and recovery proceedings were carried out under the Act, not the repealed Ordinance. They argue that the notice under section 13(2) and subsequent possession notice under section 13(4) were valid under the Act. The Bank refutes the petitioners' claims of improper actions and asserts that the properties taken possession of were not prohibited under the Act. The Court recognizes the Bank's authority to recover non-performing assets under the Act and allows them to continue proceedings in accordance with the law.

3. The petitioners allege that the Bank's officials engaged in coercive tactics, including threats of dispossession and involvement of Army personnel, which they argue are illegal and against natural justice. In response, the Bank denies using coercion and asserts that their actions were lawful and in compliance with the Act. The Court does not find evidence of coercion in the Bank's actions but emphasizes the importance of following due process and legal procedures in such recovery proceedings.

4. The Bank contends that the petitioners failed to utilize the statutory remedies available under the Act, such as raising objections or representations against the notices issued. They argue that the petitioners directly approached the Court without availing the remedies provided under the Act. The Court notes the availability of statutory remedies, including appeals to the Debts Recovery Tribunal, and emphasizes the importance of exhausting such remedies before seeking judicial intervention.

5. The Court's decision underscores the need to uphold the purpose and intent of the Act in dealing with non-performing assets. It highlights the statutory framework in place for recovery proceedings and the importance of following legal procedures to address defaults. The Court's ruling allows the Bank to proceed lawfully under the Act, ensuring that the objectives of the legislation are upheld while safeguarding the rights of all parties involved.

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