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TMI Blog2006 (11) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Mr. A.L. Somayaji, learned additional Advocate General, was requested to assist the court, since the question involved in the present case is a pure question of law. 4. Chapter III of the Act deals with enforcement of security interest and section 13 reads as follows : "13. Enforcement of security interest. (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or Tribunal, by such creditor in accordance with the provisions of the Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have indicated above, we may consider as to what forums or remedies are available to the borrower to ventilate his grievance. The purpose of serving a notice upon the borrower under sub-section (2) of section 13 of the Act is, that a reply may be submitted by the borrower explaining the reasons as to why measures may or may not be taken under sub-section (4) of section 13 in case of non-compliance with notice within 60 days. The creditor must apply its mind to the objections raised in reply to such notice and an internal mechanism must be particularly evolved to consider such objections raised in the reply to the notice. There may be some meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under sub-section (4) of section 13 of the Act. Once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness on the part of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under sub-section (4) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be checked to communicate the reason for not accepting the objections, if raised and before he takes the measures like taking over possession of the secured assets, etc. 47. This will also be in keeping with the concept of right to know and lender s liability of fairness to keep the borrower informed particularly the developments immediately before taking measures under sub-section (4) of section 13 of the Act. It will also cater to the cause of transparency and not secrecy and shall be conducive in building an atmosphere of confidence and healthy commercial practice. Such a duty, in the circumstances of the case and the provisions, is inherent under section 13(2) of the Act.... 51. However, to a very limited extent jurisdiction of the civil court can also be invoked, where for example, the action of the secured creditor is alleged to be fraudulent or their claim may be so absurd and untenable which may not require any probe, whatsoever or to say precisely to the extent the scope is permissible to bring an action in the civil court in the cases of English mortgages. We find such a scope having been recognized in the two decisions of the Madras High Court which have been relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) of the Act. There must be some meaningful consideration of the objections and not a ritual rejection, to be followed up by the measures under sub-section (4) of section 13. If the Supreme Court had found on a reading of section 13(2) and section 13(4) that before proceeding under section 13(4) of the Act, a notice to be issued, the words "rather than to ritually reject them and proceed to take drastic measures....." would not have been made. Therefore, it is clear that the intention of the creditor to proceed against the assets unless a satisfactory objection is received from the borrower, is expressed only once and that is by the notice under section 13(2) of the Act. In fact, it is seen from a reading of paragraph 45 above, that banks and financial institutions should appraise the borrowers of their reason for not accepting the objections or points raised in reply to the notice before proceeding to take measures under sub-section (4). These reasons overruling the objections of the borrower must also be communicated to the borrower by the secured creditor. Section 13(2) calls upon the borrower to state his objections as to why measures shall not be taken under sub-section (4) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng or implying anything which is not congenial to or consistent with such expressed intent of the law-giver; more so if the statute is a taxing statute. We will close the discussion by recalling what Lord Hailsham in Pearlberg v. Varty [1972] 2 All ER 6 has said recently in regard to importation of the principles of natural justice into a statute which is a clear and complete Code, by itself: It is true of course that the courts will lean heavily against any construction of a statute which would be manifestly fair. But they have no power to amend or supplement the language of a statute merely because in one view of the matter a subject feels himself entitled to a larger degree of say in the making of a decision than a statute accords him. Still less is it the functioning of the courts to form first a judgment on the fairness of an Act of Parliament and then to amend or supplement it with new provisions so as to make it conform to that judgment ." (p. 1045) 9. In Union of India v. Deoki Nandan Aggarwal AIR 1992 SC 96, the Supreme Court observed as follows : "We are at a loss to understand the reasoning of the learned Judges in reading down the provisions in paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is required of the lender. But if the borrower has not responded to the notice under section 13(2), the lender has no occasion to communicate his reasons, necessarily the lender proceeds to the next stage. The borrower gets a right to challenge the action only after any of the measures contemplated under section 13(4) have been taken. It is clear from the paragraphs extracted above from Mardia Chemicals case ( supra ) that the communication of the reasons may not be taken to give an occasion to resort to such proceedings which are impermissible under the Act. A person who does not respond to the notice under section 13(2) of the Act should be considered to be aware of the consequences that will follow. In any event, it is not possible to hold that a borrower who has not responded to the notice under section 13(2) will be entitled to a notice under section 13(4), whereas, in respect of a borrower who has responded to a notice under section 13(2) and has had the rejection communicated by the bank, the bank can proceed straightaway to take the measures contemplated under section 13(4). There is no room for visualising two such courses of action. This will be reading words into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faith and fair play. The borrowers cannot be left remediless in case they have been wronged against or subjected to unfair treatment violating the terms and conditions of the contract. They can always plead in defence deficiencies on the part of the banks and financial institutions." (p. 559) We would like particularly to lay stress on the words "possessing more drastic powers calls for exercise of higher degree of good faith and fairplay". 12. The directions given by the Supreme Court in Mardia Chemicals case ( supra ) have now been introduced as section 3A, also giving the time limit, within which the reasons for non-acceptance should be indicated. Section 3A is extracted hereunder : "[(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or the objection to the borrower : Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X
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