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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 ..... egistered under the provisions of the Trade Unions Act, 1926, representing workers of the petitioner company. 2. The challenge in these writ petitions is against proceedings initiated under section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) by M/s. Pegasus Assets Reconstruction Private Limited (respondent No. 1 in WPC 27921/2010 and respondent No. 3 in WPC No. 25000/2010) against the assets of the petitioner company. 3. Parties in both these writ petitions are one and the same. The pleadings on facts and grounds, as well as exhibits produced are more or less the same in both these cases. For the sake of convenience, the order of the parties as well as the order of exhibits is referred hereinafter as in its order in WP(C). No. 27021/2010. 4. A brief history on the facts of the case is as follows. With respect to liquidating debts of the petitioner company, an arrangement with its secured creditors and preferential shareholders were evolved in the form of a scheme, which was filed before this court under the provisions of sections 391 to 394 of the Companies Act. The scheme was approved with effect from 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 13(2), which was considered and rejected by the 1st respondent through Ext. P13. Subsequently the 1st respondent had issued Ext. P14 series notices under the Security Interest (Enforcement) Rules, 2002 intimating steps taken as contemplated under section 13(4) of the SARFAESI Act. The publication of possession notice was effected through Ext. P15. 7. In both these writ petitions the proceedings initiated under section 13 of the SARFAESI Act is challenged more or less on the same grounds. Specific contention is that, the acquisition of financial assets by a securitisation/reconstruction company from another securitisation/re-construction company is not permissible under the provisions of the SARFAESI Act, as clarified by Reserve Bank of India in its Master Circular dated 1-7-2010 (Ext. P16). It was also contended that section 5 of the SARFAESI Act which permits acquisition of any financial assets of a bank or a financial institution by any securitisation or reconstruction company, does not contemplates a further transfer of such financial assets to any other Bank or a financial institution or a transfer by one securitisation or reconstruction company to another securitisation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the BR Act the Banks are prohibited from engaging in any trading or buying and selling, subject to certain exceptions set out therein. Therefore, the acquisition of debts by respondent No. 2 from ARCIL is not an activity coming within the purview of the BR Act. The agreement between ARCIL and the 2nd respondent is in the nature of a speculative trading activity which is prohibited under the provisions of the BR Act. It is also contended that such an activity is prohibited under the provisions of the SARFAESI Act since section 5 of that Act permits only securitisation/reconstruction companies to acquire financial assets. Since the 2nd respondent had never validly acquired any title to the debts of the petitioner, any subsequent transfer made by the 2nd respondent is void ab initio. The alleged acquisition by way of agreement between respondents 1 and 2 is a 'non est' in the eye of law and it will not confer any right on the 1st respondent, is the contention. 10. According to the petitioner the entire transaction of assignment of debts of petitioner Company by ARCIL to the 2nd respondent, and the further transaction of assignment by the 2nd respondent to the 1st respondent were do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Reserve Bank of India. Copy of the request made by the 1st respondent in this regard and the sanction issued by the 3rd respondent are produced along with the counter affidavit of the 1st respondent as Exts. R1(B) and R1(C) respectively. It is further contended that subsequent to the transfer of assets, the petitioner company had effected part repayments to the 1st respondent, to the tune of a sum of Rs. 30,01,55,000. Ext. R1(E) series letters are produced to show that the petitioner company had confirmed/acknowledged the debt due to the 1st respondent and also acknowledged the amounts outstanding, as on 30-11-2009. It is further pointed out that the petitioner company, in its annual report for the financial year 2008-09, had recognised the first respondent as its creditor and in the auditors report it is admitted that the petitioner company had defaulted repayments of amounts due to the consortium lenders comprised of the first respondent. The first respondent also points out that replies issued by the petitioner to the statutory notices, Ext. R1(G) and R1(H) will indicate acknowledgement of the outstanding liability due to the first respondent. 13. According to the 1st respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted. The SARFAESI Act does not restrict in any manner any number of transfers, is the contention. 16. According to the 1st respondent the proceedings initiated under section 13 of the SARFAESI Act is perfectly legal and valid, because the transfers and acquisitions through which the debts and the underlying securities were assigned to the 1st respondent is legal and valid. The allegations of the petitioner describing the assignment as a colourable transaction is stoutly denied and the further allegations that such transfer was carried out in order to defeat the legal restrictions on assignments of debts, is also denied. The allegation that such transactions were initiated only for circumventing the provisions, norms etc. are totally baseless. The further allegation that the assignment agreements were executed with an unlawful object is denied. The contentions that such agreements are hit by the provisions of section 23 of the Indian Contract Act is also refuted. The allegation that the assignment is non est and it is a sham transaction was stoutly denied. There is no basis for the contention that such assignments will not confer any valid rights on respondent No. 1, is the argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in United Bank of India v. Satyawati Tondon [2010] 8 SCC 110 it was held that the remedy provided under section 17 is equally efficacious. It is found that sub-section (2) of section 17 casts a duty on the Tribunal to consider whether the measures taken by the secured creditor for enforcement of security interest are in accordance with the provisions of the Act and the Rules. If the Tribunal comes to the conclusion that the measures taken by the secured creditor are not in consonance with sub-section (4) of section 13, then it can direct the secured creditor to restore management of the business or possession of the secured assets to the borrower. The Apex Court held that the borrowers would get a reasonably fair deal and opportunity to get the matter adjudicated upon before the Debts Recovery Tribunal. The effect of some of the provisions may be a bit harsh for some of the borrowers, but on that ground the impugned provisions of the Act cannot be said to be unconstitutional, in view of the fact that the object of the Act is to achieve speedier recovery of dues declared as 'NPAs' and to achieve better availability of capital liquidity and resources to help in growth in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropositions laid in the above two decisions, and the exemptions mentioned therein are still available, which comes within the absolute discretion of the High Courts to exercise writ jurisdiction under Article 226. 20. While considering the rival submissions, it is pertinent to take note of certain observations made by the Hon'ble Supreme Court in United Bank of India's case (supra) : "It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are code unto themselves inasmuch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tarim Zila Parishad MANU/SC/0399/1968 : AIR 1969 SC 556; Whirlpool Corporation v. Registrar of Trade Marks, Mumbai MANU/SC/0664/1998 : [1998] 8 SCC 1 and Harbanslal Sahnia v. Indian Oil Corporation Ltd. MANU/SC/1199/2002 : [2003] 2 SCC 107 and some other judgments, then the High Court may, after considering all the relevant parameters and public interest, pass appropriate interim order." 21. Considering the dictum laid as above, which directly deals with the question regarding exercise of writ jurisdiction when the remedy provided under the SARFAESI Act is efficacious, I am of the view that the petitioners have not been able to make out any strong circumstances which warrants exercise of the discretionary jurisdiction, despite availability of the effective alternate remedy, which will squarely fall within any of the contingencies enumerated in Whirlpool Corpn.'s case (supra) which was reiterated in Harbanslal Sahnia's case (supra). Hence I am of the view that the writ petitions need not be entertained based on the challenges raised, and the petitioners herein can be given liberty to invoke remedies available under section 17(1). 22. However, since a basic legal question is raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate to the said financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under sub-section (1) and to which the concerned bank or financial institution is a party or which are in favour of such bank or financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favour of the securitisation company or reconstruction company, as the case may be, and may be enforced or acted upon as fully and effectually as if, in the place of the said bank or financial institution, securitisation company or reconstruction company, as the case may be, had been a party thereto or as if they had been issued in favour of securitisation company or reconstruction company, as the case may be. (4) If, on the date of acquisition of financial asset under sub-section (1), any suit, appeal or other proceeding of whatever nature relating to the said financial asset is pending by or against the bank or financial institution, save as provided in the third proviso to sub-section (1) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) the same shall not abate, or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior approval of the Reserve Bank, any business other than that of securitisation or asset reconstruction : Provided that a securitisation company or reconstruction company which is carrying on, on or before the commencement of this Act, any business other than the business of securitisation or asset reconstruction or business referred to in sub-section (1), shall cease to carry on any such business within one year from the date of commencement of this Act." 23. Based on the above provisions, contention of the petitioner is that since a trading on assets or a transfer of the assets acquired by a securitisation/reconstruction company to any other securitisation/ reconstruction company or to any other Bank/financial institution is not provided under the statute, such an act on the part of any securitisation/reconstruction company will be beyond the powers vested on it, and in doing so they will be exceeding its realm of activities which is permitted under law. According to learned senior counsel for petitioner, merely because there is no express prohibition in doing any such act, the 1st respondent could not contend that such a transfer was also contemplated under the Act. Any assi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y points out that the wording is "of any bank" and not "from any bank". Referring to sub-section (2) of section 5 it is also pointed out that the securitisation company or reconstruction company on acquisition of the financial assets will be deemed to be the lender having all rights of such bank or financial institution vested on it. That means the securitisation company or reconstruction company will be vested with the right to transfer the financial assets also, as a right which the bank or financial institution is vested with, being a lender. The counsel further draws attention to the definition of 'financial asset' under section (2)(1)(l) of the SARFAESI Act which includes any debt and beneficial interests in such debt [Section 2(1)(l)( ii) and 2(1)(l)( v)]. The definition of debt under section 2(1)(ha) in the SARFAESI Act is as assigned in section (2)(g) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDB Act). The debt defined under section 2(g) of the RDB Act will take in the assigned debt also. Therefore it is contended that a debt assigned by a bank or a financial institution in favour of a securitisation/reconstruction company will also become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt' in section 2(1)(ze ) when read with the definition of 'secured creditor' would indicate that the term 'secured creditor' has been assigned with a meaning under the SARFAESI Act, other than what is understood in common parlance. Sub-section (1) of section 13 confers right on a 'secured creditor' to enforce 'security interest' without intervention of any court. The right which a secured creditor can enforce is a 'security interest', which according to its definition in the SARFAESI Act includes a right created even by assignment. Since the definition of 'secured creditor' includes the securitisation/reconstruction companies, such institutions are conferred with powers for enforcement of security interest. When a securitisation or reconstruction company acquires an asset, it becomes a 'secured credi- tor', who is fully entitled to enforce the rights under section 13. Going by the definition of 'financial institutions' as illustrated above, it is evident that any Bank or financial institutions as well as any securitisation or reconstruction company is entitled to acquire 'security interest' as contemplated under section 5(1) of the SARFAESI Act. The contention that such acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is well before introduction of the above said guidelines. Therefore, in view of the specific sanction obtained from RBI, such question does not arise for consideration. Hence I hold that the impugned transfers with respect to the debts and securities of the petitioner company is legal and valid, and such transactions were done perfectly within the powers vested on respondents 1 and 2. 30. Incidentally it is worth mentioning that WP(C). 25000/2010 was filed by a Trade Union representing workers of the petitioner company. The Trade Union is also challenging the very same actions which are initiated under section 13 of the SARFAESI Act. The 1st respondent had questioned maintainability of the writ petition on the ground of 'locus standi' of the petitioner Mr. P.K. Suresh Kumar, learned counsel appearing for the petitioner therein contended that the workers of the company, being persons affected by taking over of management of the company by the secured creditor (1st respondent herein), are persons aggrieved by such actions and hence they are entitled to challenge the validity of such actions. Referring to a judgment of the Hon'ble Supreme Court in National Textile Works' Union v. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various legal questions were attempted, I am not inclined to dismiss any one of the writ petitions, solely on the premise of the alleged suppressions or misleadings. In that respect alone I am not inclined to throw out the writ petitions at the threshold. Considering the challenges raised, I do not find force in the contention that the 2nd respondent is a total stranger and a totally unnecessary party to be impleaded. 33. It is pertinent to take note of the contentions of the 1st respondent regarding the acknowledgement of debt by way of part payments made by the petitioner company to the 1st respondent. The 1st respondent had produced Ext. R1(E) series letters to show that the petitioner company had confirmed/acknowledged the debt due to the 1st respondent and also the amounts outstanding. It is further pointed out that the annual report of the petitioner company contains such acknowledgements. The contention of the 1st respondent is that the petitioner company is prevented from raising any dispute in view of the acquiescence. Per contra, contentions of the petitioner company is that even assuming such acknowledgement of debt or acquiescence exists, it will not prevent the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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