2009 (10) TMI 531 - HC - Companies Law

Legality and validity of the notice dated 30th April, 2009 issued by the respondent-bank in terms of sub-section (2) of section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Inerest Act, 2002 questioned Held that - In the instant case, the conduct of the writ petitioner which lulled the respondent-bank into a some kind of hybernation is a factor which has its own role in contributing to the delay in taking measures by the respondent-bank under sub-section (4) of section 13. Therefore, any intervention by us at this stage would only be putting a premium to such a conduct of the writ petitioner. Hence, for this reason also, we refrain from interfering with the impugned notice. Pursuant to section 17 read with section 18 of The Recovery of Debts Act, the jurisdiction of the civil courts is ousted and the Tribunal constituted under the said Act alone has jurisdiction to recover the magnitude of debt, like in the present case. Therefore, the contention of the learned counsel for the writ petitioner that the respondent-bank cannot fall back upon the provisions contained under sub-section (4) of section 13, but must fall back upon the option of going to the civil court is a contention which disregards the provision of the Recovery of Debts Act which ousted the jurisdiction of the civil court. At any rate, any such option to fall back upon the otherwise normal mode of recovery, will be a far more time consuming affair and that would, even according to the writ petitioner, be further compounding the mischief to him. Therefore, it would be wholly in the interests of the writ petitioner to prevent the debt from escalating any further. Hence, for this reason also, we do not see any reason to interfere with the impugned notice. Appeal dismissed.

Issues Involved:
1. Legality and validity of the notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
2. Whether the bank forfeited its right to issue a second notice under section 13(2) after a lapse of nearly five years.
3. Disproportionate mischief caused to the petitioner due to the delay in proceedings.
4. Compliance with RBI guidelines for classifying assets as non-performing assets (NPA).
5. Jurisdiction of civil courts versus the Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

Detailed Analysis:

1. Legality and Validity of the Notice under Section 13(2) of the Act:
The writ petitioner challenged the legality of the notice dated 30th April 2009 issued by the respondent-bank under section 13(2) of the Act. The petitioner had availed a term loan of Rs. 1,75,00,000, which was not repaid, leading to the bank invoking section 13(2) on 21st June 2004. The petitioner did not respond, and the bank sought arbitration under the Andhra Pradesh Cooperative Societies Act, 1964. The arbitrator's award was challenged, leading to a remand and subsequent withdrawal of arbitration proceedings. The bank reissued a notice under section 13(2) on 30th April 2009, demanding Rs. 9,68,04,343. The court found that the bank followed due process and the notice was valid.

2. Forfeiture of Right to Issue a Second Notice:
The petitioner argued that the bank forfeited its right to issue a second notice under section 13(2) after failing to act on the first notice issued in 2004. The court held that the statute does not mandate a fixed timeline for completing measures under section 13(4) after issuing a notice under section 13(2). The bank has discretion to choose the appropriate measure and timeline. The court rejected the argument that the bank must follow a strict sequence leading to the sale of the secured asset immediately after the notice period.

3. Disproportionate Mischief:
The petitioner contended that the delay in proceedings caused disproportionate mischief, as the amount demanded increased significantly from Rs. 3,61,95,130 in 2004 to Rs. 9,68,04,343 in 2009. The court acknowledged the principle that no enactment should cause manifest or disproportionate injustice. However, it found that the delay could be attributed to the petitioner's own conduct, which prevented the bank from realizing the debt earlier. The court emphasized that the Act aims to facilitate quick recovery of debts to maintain liquidity in the banking sector.

4. Compliance with RBI Guidelines:
The petitioner alleged that the bank breached RBI guidelines for classifying assets as NPAs. The court noted that the classification of an asset as an NPA must follow RBI guidelines, and the measures under section 13 can only be initiated after such classification. The court found no evidence of non-compliance by the bank and upheld the classification and subsequent actions.

5. Jurisdiction of Civil Courts versus Tribunal:
The petitioner argued that the bank should resort to civil courts for debt recovery instead of invoking section 13(4) of the Act. The court clarified that the jurisdiction of civil courts is ousted by the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, which mandates that such matters be dealt with by the Tribunal. The court found that resorting to civil courts would be more time-consuming and detrimental to the petitioner's interests.

Conclusion:
The writ petition was dismissed as the court found no merit in the petitioner's arguments. The notice issued by the respondent-bank under section 13(2) of the Act was deemed valid, and the bank was within its rights to issue a second notice after a lapse of time. The court emphasized the importance of quick debt recovery to maintain financial stability and liquidity in the banking sector.

← Previous Next →