2010 (9) TMI 224 - HC - Companies Law

Petitioner had prayed for the proceedings initiated by the respondents under the provisions of the SARFAESI Act, 2002, be quashed - the notice dated August 24, 2009, issued by respondent No. 2 under section 13(2) of the SARFAESI Act be set aside - the respondent be directed to obey the mandate of section 22 of the SICA, 1985 Held that - Though the measure under section 13(4) was already taken still the same was not disclosed by the appellant in the writ appeal. No explanation on the part of the appellant-company has been offered even during the course of the arguments as to why this material fact has not been disclosed in the writ appeal. In the circumstances, on the ground of suppression of material fact, this writ appeal deserves to be dismissed. The learned single judge has committed no error in not entertaining the writ petition against the notice issued under section 13(2) of the Act of 2002. The appellant s contention that the question raised and involved in the matter cannot be gone into by the Debts Recovery Tribunal is also wholly misconceived, in view of the wide scope of the jurisdiction vested in the Debts Recovery Tribunal under section 17 of the Act of 2002 In the circumstances at this stage when prima facie there is a specific averment that the assignment in favour of the third respondent was effected on March 29, 2006, the reference under section 15 of the SICA was made on March 31, 2004, much after June 21, 2002, the date of commencement of the Act of 2002 and also having regard to the averment that the noticee consortium are secured creditors to the extent of 81 per cent. in respect of the assets/securities of the appellant-company in our view the reference under the SICA stands abated and such no interference is called for on this ground. Appeal dismissed.

Issues Involved:
1. Quashing of proceedings under the SARFAESI Act, 2002.
2. Validity of notice under section 13(2) of the SARFAESI Act.
3. Compliance with section 22 of the SICA, 1985.
4. Availability of alternative remedy under section 17 of the SARFAESI Act.
5. Validity of debt assignment to Standard Chartered Bank.
6. Suppression of material facts by the appellant.

Issue-wise Detailed Analysis:

1. Quashing of proceedings under the SARFAESI Act, 2002:
The appellant-company sought to quash the proceedings initiated by the respondents under the SARFAESI Act, 2002. The court noted that the appellant had failed to repay the credit facility, leading to the classification of its debts as "non-performing assets." Consequently, Canara Bank issued a notice under section 13(2) of the SARFAESI Act, indicating that the consortium of banks would exercise their rights under section 13(4) of the Act. The court upheld the initiation of proceedings under the SARFAESI Act, finding no grounds for quashing them.

2. Validity of notice under section 13(2) of the SARFAESI Act:
The appellant challenged the notice issued under section 13(2) of the SARFAESI Act, arguing that the consortium did not represent more than three-fourths of the outstanding amount and that Standard Chartered Bank was not registered under section 3(1) of the Act. The court, referencing the Supreme Court's judgment in United Bank of India v. Satyawati Tondon, held that the notice under section 13(2) could not be challenged in a writ petition due to the availability of an alternative remedy under section 17 of the SARFAESI Act.

3. Compliance with section 22 of the SICA, 1985:
The appellant contended that the proposed action under section 13(2) of the SARFAESI Act was barred by section 22 of the SICA. The court referred to the second and third proviso of section 15 of the SICA, which state that a reference to the Board for Industrial and Financial Reconstruction (BIFR) shall abate if secured creditors representing not less than three-fourths in value of the outstanding amount take measures under section 13(4) of the SARFAESI Act. The court found that the reference under the SICA stood abated due to the actions taken by the secured creditors.

4. Availability of alternative remedy under section 17 of the SARFAESI Act:
The court emphasized that the appellant had an alternative and efficacious remedy available under section 17 of the SARFAESI Act, which allows the Debts Recovery Tribunal (DRT) to consider whether measures taken under section 13(4) are in accordance with the Act and its rules. The court cited the Supreme Court's stance in United Bank of India v. Satyawati Tondon, which discourages High Courts from entertaining writ petitions when statutory remedies are available.

5. Validity of debt assignment to Standard Chartered Bank:
The appellant argued that the assignment of debt to Standard Chartered Bank was invalid as the bank was not registered under section 3(1) of the SARFAESI Act. The court held that this issue could be addressed by the DRT under section 17 of the SARFAESI Act. The DRT is empowered to examine whether the measures taken by the secured creditor are in accordance with the Act and its rules.

6. Suppression of material facts by the appellant:
The court noted that the appellant had failed to disclose that Canara Bank had already taken possession of the secured assets under section 13(4) of the SARFAESI Act before filing the writ appeal. The court deemed this suppression of material facts as a ground for dismissing the appeal. However, the court proceeded to address the other submissions on their merits.

Conclusion:
The court dismissed the writ appeal, affirming the validity of the proceedings initiated under the SARFAESI Act and the notice issued under section 13(2). The court emphasized the availability of an alternative remedy under section 17 of the SARFAESI Act and held that the reference under the SICA stood abated due to the actions taken by the secured creditors. The court also highlighted the appellant's suppression of material facts as a reason for dismissal.

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