2011 (3) TMI 1463 - HC - Companies Law

Default in payment of loan - suit for recovery - SARFAESI Act, 2002 - jurisdiction of high court in writ petition when alternative appellant remedy is available - held that - the High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom any reason why the High Court should entertain a petition filed under Article 226 of the Constitution and pass interim order ignoring the fact that the petitioner can avail effective alternative remedy by filing application, appeal, revision, etc. and the particular legislation contains a detailed mechanism for redressal of his grievance. It is clear that the partners of the petitioner-firm, namely, Mr. Pratap Bhanu Sharma, Narbada Prasad Sharma, Chandra Bhanu Sharma are also the Directors of the Company i.e., Union Pesticides Private Limited, hence, all the three persons are the same. The petitioner-firm transferred its business to the company M/s. Union Pesticides Private Limited. A copy of the agreement to this effect has been filed as Annexure-R/2 along with the return. Even if the pleadings of the petitioner and the arguments advanced by the learned counsel for the petitioner are accepted, then also the Board of Directors of M/s. Union Pesticides Private Limited had wrongly mortgaged the land with the bank and they are the same persons. Prima facie, it appears that they played a fraud with the bank. In such circumstances, the Board of Directors of M/s. Union Pesticides Private Limited, namely, Mr. Pratap Bhanu Sharma, Narbada Prasad Sharma, Chandra Bhanu Sharma are primarily required to be prosecuted for their criminal act.

Summary

Issues Involved:
1. Legality of the auction notification issued under SARFAESI Act, 2002.
2. Maintainability of the writ petition under Article 226 of the Constitution.
3. Allegation of fraud and potential criminal liability of the Directors.

Issue-wise Detailed Analysis:

1. Legality of the Auction Notification Issued Under SARFAESI Act, 2002:
The petitioner, a registered partnership firm, challenged the auction notification dated 13-2-2011 issued by the bank under SARFAESI Act, 2002. The firm had purchased land in Vidisha and claimed ownership. However, M/s. Union Pesticides Private Limited, a company with overlapping directors from the petitioner-firm, had taken loans from the respondent-bank and mortgaged the said land. Due to non-payment, the bank classified the account as a non-performing asset and initiated recovery proceedings, including the auction of the mortgaged property.

2. Maintainability of the Writ Petition Under Article 226 of the Constitution:
The respondent-bank contended that the petition was not maintainable as the petitioner-firm and the company had the same individuals as partners and directors, respectively. The bank argued that the equitable mortgage was valid and the firm could not challenge the auction proceedings. The Supreme Court's ruling in United Bank of India v. Satyawati Tondon was cited, emphasizing that the High Court should not entertain writ petitions under Article 226 if an effective alternative remedy is available under the SARFAESI Act. The court reiterated that the Debt Recovery Tribunal (DRT) and the Appellate Tribunal provide expeditious and effective remedies, and thus, the petition was dismissed as not maintainable.

3. Allegation of Fraud and Potential Criminal Liability of the Directors:
Upon examining the case records, the court noted disturbing facts suggesting possible fraud. The sale deeds indicated that the land was sold to M/s. Union Pesticides Private Limited through its partners, who were also the directors of the company. The court observed that the same individuals, acting in different capacities, might have played a fraud on the bank by mortgaging the land. Consequently, the court directed the Superintendent of Police, Vidisha, to conduct an independent investigation into the actions of the directors, namely Mr. Narbada Prasad Sharma, Mr. Pratap Bhanu Sharma, and Mr. Chandra Bhanu Sharma, to determine any criminal liability.

Conclusion:
The petition was dismissed due to the pending proceedings before the Debt Recovery Tribunal, rendering it not maintainable. The court ordered an investigation into potential fraud by the directors and imposed a cost of Rs. 10,000 on the petitioner.