2019 (1) TMI 827 - HC - Indian Laws

Maintainability of application - filing of securitization application before DRT without losing physical possession - Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - whether on issuance of notice under Section 13(4) of the 2002 Act, the borrower or any other person aggrieved of the action initiated there under can take recourse to Section 17 of the 2002 Act by filing an application thereunder without losing symbolic or physical possession of the secured asset? Held that - The issue involved in the present writ petitions is no longer res integra. The Supreme Court in M/s Hindon Forge Pvt. Limited s case 2018 (11) TMI 498 - SUPREME COURT OF INDIA , against the judgment rendered by the Full Bench of the Allahabad High Court had adjudicated similar proposition - it was held that a securitization application under Section 17(1) of the 2002 Act is maintainable only when actual/physical possession is taken by the secured creditor or the borrower loses actual/physical possession of the secured assets. Further, once the right to approach DRT matures and securitization application under Section 17(1) is filed by the borrower, it is open to the DRT to deal with the same on merits and pass appropriate orders in accordance with law. The remedy available under Section 17(1) of the Act challenging proceedings under Section 13(4) of the 2002 Act would be available without losing symbolic or physical possession - the borrower or any other aggrieved person would be entitled to invoke the jurisdiction of the DRT under Section 17(1) of the 2002 Act on issuance of notice under Section 13(4) of the said Act. Petition allowed - The matter is remitted to the DRT to decide the application under Section 17 of the 2002 Act afresh on merits in accordance with law.

Issues Involved:
1. Whether a borrower can file a securitization application under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the 2002 Act) without losing physical possession of the secured asset.

Detailed Analysis:

1. Background and Facts:
The case involves a bunch of 58 petitions where the central issue is whether a borrower can approach the Debts Recovery Tribunal (DRT) under Section 17 of the 2002 Act without losing physical possession of the secured asset. The facts extracted from CWP No.19318 of 2018 detail that the petitioners, a private limited company, faced financial difficulties following a fire accident. Despite efforts to regularize the loan, the bank classified the account as a Non-Performing Asset (NPA) and initiated proceedings under the 2002 Act, including issuing notices under Sections 13(2) and 13(4). The petitioners challenged these actions before the DRT, which dismissed their application based on a judgment from the Allahabad High Court, stating that without losing physical possession, the borrower cannot approach the DRT.

2. Legal Provisions and Arguments:
The petitioners argued that Section 17 of the 2002 Act should not be interpreted to require the borrower to lose physical possession before approaching the DRT. They cited several judgments, including Mardia Chemicals Limited vs. Union of India and others, and M/s Hindon Forge Pvt. Limited vs. The State of Uttar Pradesh, to support their position. Conversely, the respondent bank supported the DRT's order, relying on the judgment in Standard Chartered Bank vs. V. Noble Kumar and others, among others.

3. Core Issue:
The core issue is whether the borrower or any aggrieved person can file an application under Section 17 of the 2002 Act upon issuance of a notice under Section 13(4), without losing symbolic or physical possession of the secured asset.

4. Statutory Provisions:
The court examined various provisions of the 2002 Act, including Sections 2, 13, 14, 15, 17, and 18, and relevant rules under the Security Interest (Enforcement) Rules, 2002. Section 13 outlines the enforcement of security interests, while Section 17 provides the right to appeal against measures taken under Section 13(4). The amendment to Section 17, effective from 1.9.2016, was also considered, which replaced "Right to appeal" with "Application against measures to recover secured debts."

5. Judicial Precedents:
The court referred to the Supreme Court's decision in M/s Hindon Forge Pvt. Limited, which set aside the Full Bench judgment of the Allahabad High Court. The Supreme Court clarified that the borrower can approach the DRT under Section 17 at the stage of the possession notice referred to in Rules 8(1) and 8(2) of the 2002 Rules, which deal with constructive possession. The judgment in Mardia Chemicals was also discussed, emphasizing that the proceedings under Section 17 are in lieu of a civil suit.

6. Conclusion:
The court concluded that the remedy under Section 17(1) of the 2002 Act is available without the borrower losing symbolic or physical possession. The borrower or any aggrieved person can invoke the jurisdiction of the DRT upon issuance of a notice under Section 13(4). Consequently, all the writ petitions were allowed, the impugned orders passed by the DRT were set aside, and the matters were remitted to the DRT for fresh consideration on merits.

7. Operative Part:
The court's operative part declared that the borrower/debtor can approach the DRT under Section 17 at the stage of the possession notice referred to in Rules 8(1) and 8(2). The appeals were sent back to the respective courts/tribunals to apply this judgment and decide each case accordingly.

Summary:
The High Court of Punjab and Haryana held that a borrower can approach the DRT under Section 17 of the 2002 Act without losing physical possession of the secured asset. The court set aside the DRT's orders dismissing the petitions and remitted the matters for fresh consideration on merits, aligning with the Supreme Court's interpretation in M/s Hindon Forge Pvt. Limited.

← Previous Next →