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TMI Blog2010 (11) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions contained under the SARFAESI Act or under the RDB Act or under the BR Act. These writ petitions deserve no merit. Challenge raised against the proceedings initiated under the SARFAESI Act on the ground that, assignment of debts and underlying securities of the petitioner company by M/s. ARCIL to the 2nd respondent and the subsequent assignment by the 2nd respondent to the 1st respondent in WP(C).27021/10 [3rd respondent in WP(C).25000/10] is illegal and invalid, is hereby negatived. I hold that those transactions are legal and valid under the provisions of the SARFAESI Act, RDB Act and BR Act, and it is not violative of the guidelines or norms prescribed by the RBI. Accordingly the writ petitions are dismissed. - WP (C) NOS. 25000 & 27021 OF 2010 - - - Dated:- 22-11-2010 - C.K. ABDUL REHIM, J. E.K. Nandakumar, A.K. Jayasankar Nambiar, K. John Mathai, P. Benny Thomas, P. Gopinath and Nithin George for the Petitioner. Pravin Samadani, George Thomas Mevada, Susheel Joseph Cyriac, V. Chitambaresh, H. Ramanan, Manu George Kuruvilla, M. Pathrose Matthai, Saji Varghese and Smt. Mariam Mathai for the Respondent. JUDGMENT 1. The petitioner in WP(C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. ARCIL, through agreements dated 5-4-2008 and 7-4-2008 had assigned their rights along with the underlying securities, which constitute 55 per cent of the total debts of the petitioner company, in favour of the 2nd respondent, which is a banking company constituted under the provisions of the Banking Regulation Act, 1949 (BR Act). Exts. P3 and P4 are the agreements executed between ARCIL and the 2nd respondent. The 2nd respondent in turn assigned the above debts and underlying securities in favour of the 1st respondent, which again is another asset reconstruction company, by virtue of Ext. P5 agreement. 6. According to the petitioner company, they were negotiating with the 2nd respondent Bank for settlement of the liabilities. But pursuant to Ext. P5 agreement the 1st respondent caused Ext. P7 legal notice calling upon the petitioner company to make payment of outstanding balance of Rs. 275,47,28,329.14 (Rupees Two Hundred and Seventy Five crores, Forty Seven lakhs, Twenty Eight Thousand, Three Hundred and Twenty Nine and paise Fourteen only). The petitioner company had caused Ext. P8 reply requesting the 1st respondent not to precipitate the issue since negotiations with the 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion/ARC under section 13 of the Act is only to proceed against the borrower, notwithstanding anything contained in section 69 or 69A of the Transfer of Property Act, in order to enforce a security without intervention of the Court or Tribunal, and such power can only be exercised in the manner prescribed under the provisions contained in the Act, and any deviation from the same cannot be permitted, is the contention. 8. In view of the above proposition canvassed, contention of the petitioner is that; the transfer of the debts and underlying securities of the petitioner company by M/s. ARCIL to the 2nd respondent and the subsequent transfer by the 2nd respondent to the 1st respondent are illegal and invalid, and therefore the 1st respondent is not entitled to invoke section 13 of the SARFAESI Act. According to the petitioner, the contents of Ext. P13 letter to the effect that the petitioner had already accepted and acquiesced the transaction, could not be of no avail, because the agreement between ARCIL and the 2nd respondent or between the 2nd respondent and the 1st respondent does not indicate any transfer of the rights to initiate proceedings under the SARFAESI Act. When a stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the guidelines and the norms prescribed by Reserve Bank of India. Therefore the petitioner is seeking to quash the proceedings initiated under the SARFAESI Act. 11. In the counter affidavit filed by respondents 1 and 2, maintainability of these writ petitions were challenged on the basis of availability of efficacious remedies provided under the SARFAESI Act. Various legal precedents were pointed out in which the Hon ble Supreme Court had deprecated the practice followed by some of the High Courts in interfering with steps initiated under the SARFAESI Act, exercising power under Article 226 of the Constitution of India. The restrictions imposed under section 34 of the SARFAESI Act barring interference of the civil courts, was also pointed out. Further contention is that the petitioner company had accepted the 1st respondent as the ultimate assignee of its debts and also made repayments to the 1st respondent. On the basis of such acceptance and acquiescence the petitioner company could not challenge the transfer of debts and assets in favour of the 1st respondent, is the contention. The petitioner company was also accused with suppression of material facts from this court, like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner can hardly contend that the assignment is violative of the BR Act. It is stated that, the BR Act does not prohibit in any manner a banking company from dealing on its debts. On the other hand, section 8 of the BR Act specifically permits such dealing, and therefore the argument of the petitioner that the banking company is not permitted to deal with debts under the BR Act, is highly misconceived and untenable, is the contention. 14. It is further contended that the provisions of the SARFAESI Act does not prohibit a banking company from acquiring or otherwise dealing in securities. A financial asset within the meaning of the SARFAESI Act includes a debt with underlying security. Therefore contention of the 1st respondent that the SARFAESI Act does not envisage dealing in debt by a Bank, is incomprehensible. Section 13 of the Act provides enforcement of a security interest by any secured creditor including a banking company or an asset reconstruction company, and the same does not draw a distinction between the powers of a banking company and an asset reconstruction company, as far as enforcement of the securities held by them. Therefore the contentions attempting any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ambaresh, Senior Advocate. 18. I am inclined to consider the question regarding maintainability of these writ petitions as a foremost issue. Mr. Samdani raised a contention that, challenge against the proceedings under section 13 of the SARFAESI Act could not be entertained under Article 226 of the Constitution of India, in view of section 17(1) of the said Act. It is provided under section 17(1) that any person including the borrower if aggrieved by any of the measures referred to in sub-section (4) of section 13, is at liberty to approach the Debts Recovery Tribunal making an application in the matter, within 45 days from the date on which such measures are taken. Placing reliance on Mardia Chemicals Ltd. v. Union of India [2004] 4 SCC 3111, learned counsel contended that the proceedings under section 17 of the Act, is not an appellate in nature. The Hon ble Supreme Court observed that it seems to be a misnomer and in fact it is the initial action which is brought before a forum as prescribed under the Act. It is the stage of initial proceedings like filing of a suit in Civil Court. The Hon ble Supreme Court observed that, as a matter of fact, proceedings under section 17 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 226 for passing orders which have serious adverse impact on the right of Banks and other financial institutions for recover their dues. The Hon ble Apex Court also observed that they hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection. 19. Per contra, Mr. Shaffique put forth arguments contending that the proceedings now initiated by the 1st respondent is wholly without jurisdiction and in such case availability of alternate remedy is not a bar for the High Courts to exercise jurisdiction under Article 226. He relied on the decision of the Hon ble Supreme Court in Whirlpool Corpn. v. Registrar of Trade Marks [1998] 8 SCC 1 in support of the above proposition. It is held therein that having regard to the facts of each case the High Court has a discretion to entertain a writ petition. But the High Court has to impose upon restrictions, one of which is that if an effective and efficacious remedy is available the High Court would not normally exercise its jurisdiction. But it is held that the alternative remedy will not operate as a bar in at least three contingencies, namely, where the writ petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers or writs including the five prerogative writs for the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of that power but, at the same time, we cannot be oblivious of the rules of self-imposed restraint evolved by this court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution. 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 must be remembered that stay of an action initiated by the State and/or its agencies/instrumentalities for recovery of taxes, cess, fees, etc., seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets acquired by such company to any other securitisation/reconstruction company or to any other Bank/financial institution. In order to have a better appreciation it will be beneficial to examine the relevant provisions of the SARFAESI Act. Section 5(1) to (4) deals with acquisition of rights or interests in financial assets, which reads as follows: "5. Acquisition of rights or interest in financial assets. (1). Notwithstanding anything contained in any agreement or any other law for the time being in force, any securitisation company or reconstruction company may acquire financial assets of any bank or financial institution (a )by issuing a debenture or bond or any other security in the nature of debenture, for consideration agreed upon between such company and the Bank or financial institution, incorporating therein such terms and conditions as may be agreed upon between them; or (b )by entering into an agreement with such Bank or financial institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed upon between them. (2) If the bank or financial institution is a lender in relation to any financial assets acquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company or reconstruction company may, for the purposes of asset reconstruction, having regard to the guidelines framed by the Reserve Bank in this behalf, provide for any one or more of the following measures, namely (a )the proper management of the business of the borrower, by change in, or take over of, the management of the business of the borrower; (b )the sale or lease of a part or whole of the business of the borrower; (c )rescheduling of payment of debts payable by the borrower; (d )enforcement of security interest in accordance with the provisions of this Act; (e )settlement of dues payable by the borrower; (f )taking possession of secured assets in accordance with the provisions of this Act." Section 10 enumerates other functions of the securitization company or reconstruction company which reads as follows : "10. Other functions of securitisation company or reconstruction company. (1) Any securitisation company or reconstruction company registered under section 3 may (a )act as an agent for any bank or financial institution for the purpose of recovering their dues from the borrower on payment of such fee or charges as may be mutually agreed upon betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rule is that, if this were not so the statutory provisions might as well not have been enacted similarly. In Gujarat Electricity Board v. Girdharlal Motilal AIR 1969 SC 267 it is observed that if the Legislature has prescribed a mode for exercising of any power, that power can be exercised only in that manner and in no other manner. So also, in K.L. Gupte v. Municipal Corpn. of Greater Bombay AIR 1968 SC 303 the Hon ble Supreme Court observed that, where large powers are given to certain authorities, the exercise whereof may make serious inroads into the rights of property of private individuals, we have to see whether there is any guidance to be collected from the Act itself, its object and its provisions, in the light of the surrounding circumstances which made the legislation necessary, taken in conjunction with well known facts of which the court might take judicial notice. Learned counsel also placed reliance on a decision of this court in A. Padmanabhan v. District Collector AIR 1982 Ker. 177. A learned Single Judge of this court, referring to provisions contained in section 65 of the Kerala Revenue Recovery Act, observed that unless it is possible to locate specific conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel further pointed out definition of secured creditor under section 2(1)(zd) of SARFAESI Act. By virtue of amendments brought in the year 2004 securitisation company or reconstruction company as the case may be are also included along with bank or financial institutions. Therefore it is contended that on the basis of acquisition of rights or interests in any financial asset of a bank or a financial institution or securitisation/ reconstruction company will automatically be placed in the status of a secured creditor and therefore all rights for transfer or for reconstruction or securitisation can be exercised by such a company in par with exercise of such rights by the bank or financial institution. 26. Mr. Samdani further points out that the measures for asset reconstruction provided under section 9 is without prejudice to provisions contained in any other law for the time being in force. He also points out that section 37 of the SARFAESI Act makes it clear that the provisions contained therein shall be in addition to and not in derogation of various other statutes, including the RDB Act. Therefore, considering the definition of various terms and other provisions contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, since acquisition of financial asset is a matter governed by provisions contained in the SARFAESI Act, which enable any banking company to do such transactions, I am of the view that unless the provisions in the BR Act contains any specific restrictions, the 2nd respondent could not be prevented from engaging in any such activity. Yet another contention is that the provisions contained in the BR Act expressly prohibits from engaging any trading or buying and selling. In view of the findings arrived as above, I am not agreeable with the contention that the acquisition of the financial assets through transfer by itself will come within the purview of, trading or buying or selling, as contemplated under section 8 of the BR Act. Therefore I hold that the transfer of secured assets of the petitioner company by ARCIL to the 2nd respondent and the subsequent transfer by the 2nd respondent to the 1st respondent are not in any manner prohibited and it is not contrary to any of the provisions contained under the SARFAESI Act or under the RDB Act or under the BR Act. 29. Further controversy exist as to whether the guidelines issued by the Reserve Bank of India (RBI) is in any way prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to raise challenges on the question of maintainability, and all the contentions raised in that respect is left open for agitation. 31. The additional 4th respondent, M/s. ICICI Bank Ltd., is sailing together with the petitioner company in its contentions on merits of the grounds raised in these writ petitions. The additional respondent claims to be a shareholder of the petitioner company allotted with considerable shares. Here also, the 1st respondent is raising strong objections regarding locus standi of the shareholder to raise challenges against the proceedings initiated under the SARFAESI Act. But, for the very same reasons as stated above, I am not entering upon any findings with respect to the question regarding locus standi of the additional 4th respondent. Those questions are also left open for agitation to all the parties concerned. 32. Senior Advocate Mr. V. Chithambaresh appearing for the 2nd respon-dent Bank raised strong contentions in support of the 1st respondent. It is alleged that the 2nd respondent was unnecessarily dragged on to these litigations by suppression of material facts, with an attempt to mislead the court and therefore they are entitled to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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