9911796707
TMI Blog2007 (2) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... ami Muthukamatchi Textiles (P.) Ltd., Subha Textiles and Vinotha Textiles, which have now been merged as Golden Weaving Mills (P.) Ltd., i.e., the petitioner herein. The respondent has been established under section 3 of the State Financial Corporations Act, 1951 (the SFC Act ). The three previous units had obtained financial assistance from the respondent to the tune of Rs. 55,24,000, Rs. 37,59,000 and Rs. 26,92,000 respectively and the said three units had failed to repay the availed loan amount to the respondent. Consequently, the respondent initiated proceedings under section 29 of the SFC Act and took possession of the units. At that stage, the management of the petitioner-company approached the respondent and offered to take over the above three units. At the time of taking over an amount of Rs. 1,56,00,000 was due to the respondent from the above three units. The units were taken over by the petitioner but the petitioner failed to repay the loan amount, and, consequently, the respondent again initiated proceedings under section 29 of the SFC Act to recover the balance amount due. The petitioner challenged the action of the respondent in WP No. 2288 of 2001 and interim sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FC Act provides that the said Act shall be in addition to, and not in derogation of, any other law for the time being in force in respect of industrial concerns who remain as defaulters. Therefore, any action taken in pursuance of section 13(4) of the SARFAESI Act would be in derogation of section 46B of the SFC Act, read with section 22, of the SICA and would, thus, be barred in view of section 36 of the SARFAESI Act. Learned counsel submitted that when two distinct statutes provide two similar remedies, the doctrine of election would apply and the respondent-Corporation having resorted to the provisions of section 29 of the SFC Act, is not entitled to avail of the provisions under section 13 of the SARFAESI Act. Learned counsel further submitted that in any event, the respondent-Corporation does not even represent 75 per cent of the secured creditors so as to enable it to initiate action under the SARFAESI Act. Thus, even the amendment to the SICA as made by the SARFAESI Act would not be available to the respondent-Corporation so as to initiate action against the petitioner-company under the SARFAESI Act. 5. In reply, Mr. Jayesh Dolia, learned counsel appearing for the respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the industrial concern, but also provides for a remedy to take over the management of the defaulting industrial concern with or without possession as well as the right to transfer by way of lease or sale of the hypothecated property to realise its dues. Since section 29 of the Act provides both the rights and the remedies as also the procedure for enforcement of the rights and is a complete code in itself, it is open to the Corporation to act under section 29 of the Act to realise the dues from the defaulting concern by following the procedure prescribed under section 29 of the Act. The Corporation does not require the assistance of the Court to enforce its rights while invoking the provisions of section 29 of the Act to recover its dues from the defaulting concern. 7. Section 30 of the SFC Act empowers the financial corporation to require any industrial concern to discharge forthwith, in full, its liabilities to the Corporation. Section 31 of the Act has been enacted also to take care of a situation where any industrial concern, in breach of any agreement, makes default in repayment of the loan or advance or any instalment thereof or the Corporation requires immediate repaymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution; or ( ii ) securitisation company or reconstruction company; or ( iii ) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance. Secured debt has been defined in clause ( ze ) of section 2(1), which means a debt which is secured by any security interest and security interest has been defined in clause ( zf ) of section 2(1), which means a right, title or interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31 of the Act. 11. Section 13 appears in Chapter III of the SARFAESI Act and this section is the main enforcing provision in the Act. It provides that a secured creditor may enforce any security interest without intervention of the Court or Tribunal irrespective of section 69 or section 69A of the Transfer of Property Act, where according to sub-section (2) of section 13, the borrower is a defaulter in repayment of the secured debt or any instalment of repayment and further the debt standing again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SICA. As a result of this amendment, a reference pending before the BIFR shall abate if the secured creditors representing not less than three-fourths in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of section 13 of the SARFAESI Act. 14. In A.P. State Financial Corpn. v. Gar Re-rolling Mills [1994] 2 SCC 647, the question before the Supreme Court was whether the financial corporation set up under section 3 of the SFC Act is entitled to take recourse to the remedy available to it under section 29 of the Act even after having obtained an order or a decree after invoking the provisions of section 31 of the Act, but without executing that decree or order. The High Court held that the corporation having moved the Court for a relief under section 31 of the Act was not entitled to recover the amount of debt due by taking recourse to the provisions of section 29 of the Act and allowed the writ appeal filed by the company. On appeal, while reversing the judgment of the division Bench, the Supreme Court held as follows : "13. On a conj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same relief, the party to whom the said remedies are available has the option to elect either of them but that doctrine would not apply to cases where the ambit and scope of the two remedies is essentially different. To hold otherwise may lead to injustice and inconsistent results. Since, the corporation must be held entitled and given full protection by the court to recover its dues it cannot be bound down to adopt only one of the two remedies provided under the Act. In our opinion the corporation can initially take recourse to section 31 of the Act but withdraw or abandon it at any stage and take recourse to the provisions of section 29 of the Act, which section deals with not only the rights but also provides a self-contained remedy to the corporation for recovery of its dues. If the corporation chooses to take recourse to the remedy available under section 31 of the Act and pursues the same to the logical conclusion and obtains an order or decree, it may thereafter execute the order or decree, in the manner provided by section 32(7) and (8) of the Act. The corporation, however, may withdraw or abandon the proceedings at that stage and take recourse to the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the two remedies is essentially different. 16. A similar contention was raised before the Supreme Court in Transcore v. Union of India [2007] 73 SCL 11 , where it was argued that the banks or financial institutions, having elected to seek their remedy in terms of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993), cannot invoke the SARFAESI Act for realising the secured assets without withdrawing or abandoning the O.A. filed before the Debts Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act. This argument was expressly rejected by the court and it was held as follows : "40. The heart of the matter is that NPA Act proceeds on the basis that an interest in the asset pledged or mortgaged with the bank or FI is created in favour of the bank/FI; that the borrower has become a debtor, his liability has crystallised and that his account with the bank/FI (which is an asset with the bank/FI) has become sub-standard. 41. Value of an asset in an inflationary economy is discounted by the time factor. A right created in favour of the bank/FI involves corresponding obligation on the part of the borrower to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction, namely, to repay the debt or to discharge some other obligation. 44. Therefore, when section 13(4) talks about taking possession of the secured assets or management of the business of the borrower, it is because a right is created by the borrower in favour of the bank/FI when he takes a loan secured by pledge, hypothecation, mortgage or charge. For example, when a company takes a loan and pledges its financial asset, it is the duty of that company to see that the margin between what the company borrows and the extent to which the loan is covered by the value of the financial asset hypothecated is retained. If the borrower company does not repay, becomes a defaulter and does not keep up the value of the financial asset which depletes then the borrower fails in its obligation which results in a mismatch between the asset and the liability in the books of the bank/FI. Therefore, sections 5 and 9 talk of acquisition of the secured interest so that the balance-sheet of the bank/FI, remains clean. Same applies to immovable property charged, or mortgaged to the bank/FI. These are some of the factors which the authorized officer of the bank/FI has to keep in mind when he gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debts Due to Banks and Financial Institutions Act is not a pre-condition for taking recourse under the SARFAESI Act. It is for the bank or the financial institution, as the case may be, to exercise its discretion as to cases in which it may apply for leave and in cases where it may not apply for leave to withdraw. 18. In the light of the decision in Transcore s case ( supra ), it is clear that a creditor is entitled to choose one or more cumulative remedies open to him, unless precluded by statutory provisions or by the doctrine of election; that in the absence of any bar, it is open to the creditor to choose one or more of the cumulative remedies. The doctrine of election is a doctrine evolved by courts on equity. It is based on the principle that a man shall not be allowed to approbate and reprobate. If a person has chosen a particular remedy and has intentionally relinquished another remedy, he is debarred by the doctrine of election to pursue the remedy he has intentionally given up. As indicated earlier, this is not a case where the respondent-Corporation is pursuing both the remedies simultaneously. The remedy provided under the SFC Act is not available to the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
