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TMI Blog2015 (12) TMI 1424X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to entertain a Securitisation Application filed under section 17 of the SARFAESI Act would be guided by the principles enshrined in section 19(1) of the RDDB Act and not by section 16 of the Code of Civil Procedure, 1908. Rule is accordingly made absolute and the Petition is granted in terms of prayer clause (a). Securitisation Application is restored to the file of the DRT – III, Mumbai, to be decided on merits and in accordance with law. We would request the DRT to dispose of the Securitisation Application as expeditiously as possible and in any event, within a period of three months from today. - WRIT PETITION NO.73 OF 2014 - - - Dated:- 15-12-2015 - S.C. DHARMADHIKARI AND B.P. COLABAWALLA JJ. For The Petitoner : Mr. Pravin Samdani, Senior Counsel a/w Mr. Mayur Khandeparkar, Mr.Nishit Dhruva, Mr. Prakash Shinde, Ms. Ambreen Saheed, Ms. Purvi Joshi i/b M/s MDP and Partners For The Respondent : Mr. Chirag Mody a/w Mr. Vinod Kothari i/b M/s. Apex Law Partners, Mr. B. S. Nagar a/w Mr. Balkrishna Joshi, Ms. Aarti Suvarna i/b Global Law Offices, JUDGMENT [ PER B.P.COLABAWALLA J. ] :- 1. Rule. Respondents waive service. By consent of parties, rule made re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Petitioner at its factory unit at Village Amletha, Taluka Rajpipla, District Narmada, Gujarat and about 10,000 villagers in the nearby area are dependent of their livelihood on the Petitioner. The Petitioner had approached certain Banks and Financial Institutions for financial assistance to implement its plan of business expansion and development. However, the Petitioner became a victim of unforeseen circumstances and underwent financial problems. In fact, it also made a reference to the BIFR which declared the Petitioner as a sick company under the provisions of the Sick Industiral Companies (Special Provisions) Act, 1985. 5. It appears that some of the Banks and Financial Institutions who had granted financial assistance to the Petitioner, transferred and assigned their security interest in favour of the Respondent No.1 ARCIL. In view thereof and the fact that the Petitioner was unable to make payment of its dues, on 16th March 2009, Respondent No.1 issued a notice under section 13(2) of the SARFAESI Act. This notice was duly replied to by the Petitioner by their letter dated 23rd May 2009. The record indicates that on 4th November 2009, Respondent No.1 took possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain the Securitisation Application as the secured property was situated in the State of Gujarat and therefore the same could be filed only within the jurisdiction of the DRT where the secured property was situated. To come to this conclusion, the DRT relied upon a decision of the Full Bench of the Delhi High Court in the case of Amish Jain.1 In these circumstances, the DRT further ordered that the said Securitisation Application be returned to the Petitioner for filing the same before the competent DRT. 9. Being aggrieved thereby, the Petitioner approached the DRAT. The DRAT too by its order dated 8th October, 2013 upheld the order of the DRT III, Mumbai and dismissed the Appeal. The DRAT also placed heavy reliance on the Full Bench judgment of the Delhi High Court in the case of Amish Jain 2013 (1) D.R.T.C. 70 (Delhi) to come to the conclusion that it did. It is in these circumstances that the Petitioner is before us in our writ jurisdiction under Article 226 of the Constitution of India challenging the correctness, legality and validity of the impugned order passed by the DRAT dated 8th October, 2013. 10. In this background, Mr Samdani, learned senior counsel appearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CPC would be wholly inapplicable to a Securitisation Application that is filed under the provisions of section 17 of the SARFAESI Act. It was his submission that firstly the Securitisation Application filed under section 17 of the said Act is not a suit and therefore, section 16 of the CPC would have no application. Secondly, section 17(7) itself provides that save as otherwise provided in the SARFAESI Act, the DRT shall, as far as may be, dispose of the Securitisation Application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, the RDDB Act ) and the Rules framed thereunder. He therefore submitted that in view of this specific provision, one must look to the provisions of the RDDB Act to determine the jurisdiction of the tribunal and not the provisions of the CPC. 12. Mr Samdani submitted that as far as the provisions of the RDDB Act are concerned, section 19(1) thereof clearly defines the jurisdiction of the DRT to entertain an Original Application filed by the Bank or Financial Institution to recover any debt owed to it from any person. Section 19 inter alia stipulates that the Original Applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act were only applicable when a Bank / Financial Institution approached the DRT for recovery of their dues from any person. An Original Application filed by a Bank / Financial Institution for recovery of its dues can by no stretch of the imagination be equated with a Securitisation Application filed by the borrower or any other aggrieved person under section 17(1) of the SARFAESI Act. If this be the case, then section 19(1) of the RDDB Act cannot be resorted to in order to determine the territorial jurisdiction of the DRT entertaining a Securitisation Application filed under section 17(1) of the SARFAESI Act, was the submission. Mr Joshi would therefore submit that the judgment of Delhi High Court in the case of Amish Jain1 would apply with full force and therefore, there is no merit in this Writ Petition and the same ought to be dismissed with costs. 14. With the help of learned counsel, we have perused the papers and proceedings in the Writ Petition alongwith the orders passed by the DRT III, Mumbai dated 14th August, 2012 and the impugned order passed by the DRAT dated 8th October, 2013. On the basis of the arguments advanced and the pleadings before us, the short controve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s efforts to achieve success in rapidly developing its economy. While the banking industry in India was progressively complying with the international prudential norms and accounting practices, there were certain areas in which the banking and financial sector did not have a level playing field as compared to other participants in the financial markets of the world. The Government found that there was no legal provision for facilitating securitisation of financial assets of Banks and Financial Institutions. Further, unlike international Banks, the Banks and Financial Institutions in India did not have the power to take possession of securities and sell them to recover their dues. The legal framework relating to commercial transactions, as was then existing, had not kept pace with the changing commercial practices and financial sector reforms. This resulted in slow recovery of defaulting loans and mounting levels of non-performing assets. To get over these hurdles, the Government set up two Narsimham Committees and a Andhyarujina Committee for the purpose of further examining banking sector reforms. These Committees, after a detailed study, inter alia suggested the enactment of a ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 2 is the definitions clause. The word debt is defined in Section 2(ha) and stipulates that the word debt shall have the meaning assigned to it in clause (g) of Section 2 of the RDDB Act The Debts Recovery Tribunal has also been defined in Section 2(i) to mean the tribunal established under sub-section (1) of Section 3 of the RDDB Act. Similarly, the Appellate Tribunal is defined in Section 2(a) to mean the Debts Recovery Appellate Tribunal established under sub-section 1 of Section 8 of the RDDB Act. The words secured asset is defined in Section 2(zc) to mean the property on which the security interest is created and the words security interest are defined in Section 2(zf) to mean the right, title and 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. Finally, the words secured debt is also defined in Section (ze) to mean a debt which is secured by any security interest. Chapter II of this Act and which is not really germane to our purpose, deals with the regulation of Securitisation and Reconstruction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;] (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. 20. Section 13(6) inter alia, stipulates that after taking over possession or management of the secured assets under Section 13(4), any transfer of the secured assets by the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred, as if the transfer had been made by the owner of such secured asset. Section 13(8), thereafter provides for a right of redemption available to the borrower and stipulates that if the dues of the secured creditor together with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under this sub-section. (2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder. (3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of Section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of the business to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in sub-section (4) of Section 13 taken by the secured creditors as invalid and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45 days from the date on which such measures have been taken. Section 17(1) does not stipulate as to which DRT would have jurisdiction to entertain the Securitization Application. However, Section 17(7) reproduced above, stipulates that save as otherwise provided in the SARFAESI Act, the DRT shall, as far as may be, dispose of the Securitisation Application in accordance with the provisions of the RDDB Act and the Rules made thereunder. 24. Section 35 stipulates that the provisions of the SARFAESI Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Section 37 provides that the provisions of the SARFAESI Act or the Rules made thereunder shall be in addition to, and not in derogation of the Companies Act, 1956; the Securities Contracts (Regulation) Act, 1956; the Securities and Exchange Board of India Act, 1992; the Recovery of Debts Due to Banks and Financial Institutions Act, 1993; or any other law for the time being in force. 25. On conjoint and harmonious reading of these provisions what becomes clear is that wide powers have been given to Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge and subsisting on, and legally recoverable on, the date of the application. 28. Section 17 of the RDDB Act, stipulates that on and from the appointed day, the jurisdiction, powers and authority to entertain and decide Applications from Banks and Financial Institutions for recovery of their debt, would be exercised by the Debts Recovery Tribunal. Section 18 stipulates that on or from the appointed day, no court or other authority shall have, or be entitled to exercise any jurisdiction, powers or authority (except the Supreme Court and a High Court exercising jurisdiction under Articles 226 and 227 of the Constitution of India) in relation to the matters specified in Section 17. In other words, reading Sections 17 and 18 together, it is ex-facie clear that the Debts Recovery Tribunal has exclusive jurisdiction to decide Applications filed by Banks and Financial Institutions for recovery of their debt. 29. Thereafter comes Chapter IV which comprises of sections 19 to 24 and deals with the procedure to be followed by the DRT and the DRAT. Section 19 prescribes the procedure that is to be followed by the DRT when it is approached by a Bank or Financial Institution for recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The word may appearing in section 19(23) would indicate that it is at the discretion of the DRT whether or not it wants to execute the Recovery Certificate against a property not situated within its territorial jurisdiction. If it chooses to do so, it certainly can by virtue of the provisions of section 19(23). We must mention here that this sub-section came up for consideration before a Division Bench of this Court in the case of Tushar P. Shah Vs. International Asset Reconstruction Co. Pvt. Ltd. Ors. 2012 (6) Bom.C.R. 200 The Division Bench, after concurring with the view of the Gujarat High Court in the case of Bank of Baroda Vs. Balbir Kumar Kaul Ors. AIR 2010 GUJARAT 124 negated the contention that the word may should be read as shall in section 19(23). In other words, the Division Bench held that the DRT that issued the Recovery Certificate had the discretion to decide whether it should itself execute it against a property not within its jurisdiction or whether it should send it to the concerned DRT for execution. We must also note here that just like section 35 of the SARFAESI Act, section 34 of the RDDB Act also gives an overriding effect to the provisions con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vides for institution of suits where the subject matter is situate and reads as under:- 16. Suits to be instituted where subject-matter situate.- Subject to the pecuniary or other limitations prescribed by any law, suits- (a) for the recovery of immovable property with or without rent or profits, (b) for the partition of immovable property, (c) for foreclosure, sale or redemption in the case of a mortgage of or charge upon immovable property, (d) for the determination of any other right to or interest in immovable property, (e) for compensation for wrong to immovable property, (f) for the recovery of movable property actually under distraint or attachment, shall be instituted in the Court within the local limits of whose jurisdiction the property is situate: Provided that a suit to obtain relief respecting, or compensation for wrong to, immovable property held by or on behalf of the defendant may, where the relief sought can be entirely obtained through his personal obedience, be instituted either in the Court within the local limits of whose jurisdiction the property is situate, or in the Court within the local limits of whose jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 17 thereof within 45 days from the date on which such measures are taken. Section 17 does not circumscribe as to which DRT would have jurisdiction to entertain such a Securitization Application. We are, therefore, now called upon to decide whether jurisdiction of the DRT under Section 17 is to be determined on the basis of the principles enshrined in Section 16 of the CPC or whether its jurisdiction ought to be decided on the basis of the provisions of Section 19(1) of the RDDB Act. 35. As noted earlier, the RDDB Act as well as SARFAESI Act were brought into force to ensure quick and speedy recovery of loans and outstandings of Banks and Financial Institutions. This was necessitated in view of the fact that the legal framework that was then existing was highly inadequate for speedy recovery of these dues. It is, therefore, clear that these two legislations seek to achieve the same object and are complementary to each other. Section 17(7) of the SARFAESI Act categorically states that save as otherwise provided therein, the DRT entertaining a Securitization Application, shall, as far as may be, dispose of the Securitization Application in accordance with the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tization Application filed by a borrower under Section 17 of the SARFAESI Act. As Section 17 itself suggests, an application under the said provision is filed by any person (including a borrower) to challenge any of the measures referred to in sub-section (4) of Section 13 taken by a secured creditor. The measures referred to in Section 13(4) are either to take possession of the secured assets from the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; appoint any person to manage the secured assets, the possession of which has been taken over by the secured creditor; and/or (d) require at any time, by notice in writing, any person, who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. 38. It is these actions of the secured creditor that are challenged by any person aggrieved (including a borrower) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legislature decided to circumscribe territorial jurisdiction on the basis of situs of the property, it is specifically did so. 40. We must also note here that under the provisions of the SARFAESI Act a Securitisation Application filed under section 17(1) thereof, is to be filed before the DRT. As per the provisions of the SARFAESI Act, it is only the DRT that would have exclusive jurisdiction to entertain any challenge to the measures taken under section 13(4) of the SARFAESI Act. This is clearly spelt out from section 34 of the SARFAESI Act which stipulates that no civil court shall have jurisdiction to entertain any suit or proceedings in respect of any matter which the DRT or the DRAT is empowered by or under this Act to determine, and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under the SARFAESI Act or under the RDDB Act. In other words, a challenge to the measures taken by a secured creditor under section 13(4) of the SARFAESI Act can be laid only by filing an Application under section 17(1) thereof. The jurisdiction of the civil court to entertain such a challenge i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decided on the principles enshrined in Section 19(1) of the RDDB Act rather than on the basis of Section 16 of the CPC. In many cases, the Securitization Notice issued under Section 13(2) of the SARFAESI Act, takes within its sweep secured immovable properties situated at different places. For example to secure the loans taken by a single borrower from the Bank/Financial Institution, multiple immovable properties (one situate in Mumbai and the other in Pune) could be mortgaged to secure the Banks dues. If that borrower defaults in payments of its dues, under the provisions of section 13(2) of the SARFAESI Act, the borrower can be called upon to pay his dues failing which the Bank would be entitled to take measures as contemplated under Section 13(4) thereof against all the secured assets. In such a scenario, as per the provisions of Section 16 of the CPC, challenge to the aforesaid measures would have to filed in two different DRTs and there is every possibility of conflicting decisions being rendered on the measures initiated on the basis of the very same notice issued under section 13(2) of the SARFAESI Act. 43. To elaborate this point further, take for example that a challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al jurisdiction of the Court where the mortgaged property was situated and the Bank was free to institute a suit, only for recovery of money and territorial jurisdiction whereof was governed by Section 20 of CPC, containing the same principles as in Section 19(1) of the DRT Act. We are therefore unable to accept that any departure qua territorial jurisdiction has been made in the DRT Act, as has been observed by the Division Bench in Indira Devi. 12. The proceedings in the DRT for recovery of debt, culminate in a Certificate of Recovery which is equivalent to a Money Decree of a Civil Court. Just like a Money Decree of a Civil Court, can be transferred for execution to another Court where the assets of the Judgment Debtor from which recovery is to be effected are situated, under Section 19(23) of the DRT Act also, where the property from which recoveries are to be effected, is situated outside the local limits of the jurisdiction of the DRT which has issued the Certificate, the DRT is required to send a copy of the Certificate for execution to the DRT within whose jurisdiction the property is situated. Section 25 provides for modes of recovery of the debts specified in the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly specify the properties required to be attached and which may not necessarily be mortgaged property, Section 2(1) of the SARFAESI Act while defining financial asset expressly includes mortgage and Sections 2(zc), 2(ze) and 2(zf) define the secured asset , secured debt and secured interest as meaning the property on which security interest is created and rights under a mortgage. Section 13 of the SARFAESI Act provides for enforcement of such mortgage without the intervention of the Court or the DRT. 16. We are therefore of the view that the question of territorial jurisdiction for the remedy of appeal provided in Section 17(1) of the SARFAESI Act has to be construed in the said light and not in the light of the DRT Act making a departure from the principle enshrined in Section 16 of the CPC. 17. Section 17(1) of the SARFAESI Act provides for filing of the appeal/application thereunder not to any DRT but only to the DRT having jurisdiction in the matter . However, such jurisdiction is not specified. To determine which DRT will have jurisdiction in the matter, we have to find as to what is to be the matter for adjudication in a proceeding under Section 17(1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng jurisdiction in the matter within the meaning of Section 17(1) of the Act. ******* 19. As far as Section 17(7) of the SARFAESI Act requiring disposal of appeals under Section 17(1) of the SARFAESI Act, as far as may be in accordance with the provisions of the DRT Act and the Rules framed thereunder is concerned, though the learned Single Judge of this Court in Upendra Kumar v. Harpriya Kumar, MANU/DE/0136/1978 had held that Section 21 of the Hindu Marriage Act, 1955 providing for the proceedings thereunder to be regulated as far as may be by the CPC, could not be read as incorporating every provision of CPC or making applicable the provisions of CPC to substantive aspects like jurisdiction but the Supreme Court in Guda Vijavalakshmi v. Guda Ramachandra Sekhara Sastry, (1981) 2 SCC 646 : AIR 1981 SC 1143 took a contrary view and held that Section 21 of the Hindu Marriage Act does not make a distinction between procedural and substantive provisions of CPC and thus the provisions of CPC as partake of the character of substantive law are also by implication to apply to the proceedings under the Hindu Marriage Act and the use of the expression as far as may be is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FAESI Act. 22. Once it is held that an appeal under Section 17(1) of the SARFAESI Act cannot be equated with an application by the Bank/Financial Institution for recovery of debt under Section 19 of the DRT Act, the limits of territorial jurisdiction described under Section 19(1) of the DRT Act cannot be made applicable to Section 17(1) of the SARFAESI Act. 23. It would thus be seen that the provision for territorial jurisdiction under Section 19(1) of the DRT Act is only qua the applications to be made by the Bank or Financial Institution for recovery of its debt. However, a proceeding under Section 17(1) of the SARFAESI Act is initiated not by the Bank or the Financial Institution but by a person including the borrower aggrieved from the measures taken by the Bank or Financial Institution under Section 13(4) of the SARFAESI Act. We are thus of the view that notwithstanding Section 17(7) of the SARFAESI Act providing for the disposal of the proceedings under Section 17(1) of the SARFAESI Act in accordance with the provisions of the DRT Act and the Rules made thereunder, the same cannot make the provisions of Section 19(1) of the DRT Act applicable to proceedings under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the jurisdiction of two or more tribunals, it may send copies of the Recovery Certificate for execution to such other tribunals where the property is situated. The word may clearly indicates that this provision is discretionary and not mandatory in nature. Under section 19(23), discretion is given to the DRT to either itself execute the Recovery Certificate issued by it against a property not within its jurisdiction, or to send it to the concerned DRT where the property is situated. This is a distinct departure from the provisions of the CPC and more particularly section 39 thereof. In fact, a Division Bench of this Court in the case of Tushar P. Shah 2012 (6) Bom.C.R. 200 has taken this view and we are in full agreement with the reasoning contained therein. 47. We are also unable to agree with the Delhi High Court judgment that in the RDDB Act, there is no mention of mortgage and an application under section 19(1) thereof is required to only specify the properties required to be attached and which may not necessarily be the mortgaged property. Section 2(g) of the RDDB Act and which defines the word debt would certainly take within its sweep a relief for enforcement of mo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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