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TMI Blog2018 (3) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... and indispensable part of the statutory scheme, the Courts would not excuse a departure from it. But, on the other hand, if the reply is merely a direction and not of substance to the scheme, the non-compliance may be excused - the failure to furnish a reply to the representation is not of much significance since we are satisfied that the creditor has undoubtedly considered the representation and the proposal for repayment made therein and has in fact granted sufficient opportunity and time to the debtor to repay the debt without any avail. Therefore, in the fact and circumstances of this case, we are of the view that the debtor is not entitled to the discretionary relief under Article 226 of the Constitution which is indeed an equitable relief. The mere introduction of the words without prejudice have no significance and the debtor clearly acknowledged the debt even after action was initiated under the Act and even after payment of a smaller sum, the debtor has consistently refused to pay up. Since Section 14 provides that an application for taking possession may be made by a secured creditor, and the creditor having ceased to be a secured creditor after the confirmation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rao JJ. For the Petitioner(s)/Respondent(s) : Mr. Shyam Divan, Sr. Adv., Mr. L.K. Bhushan, Adv., Mr. Anirudharun Kumar, Adv., Mr. Mohit Sharma, Adv., for M/S. Dua Associates, AOR For the Petitioner(s) : Mr.Mukul Rohatgi, Sr. Adv., Mr. P.S. Narsimha, ASG, Mr. Shubhransho Padhi, Adv., Mr. Somay Kapoor, Adv. And Mr. Kush Chaturvedi, AOR For the Respondent(s) : Mr. C.U. Singh, Sr. Adv., Mr. Anniruddha Joshi, Adv., Mr. Manish Desai, Adv., Mr. Sowjanya Menon, Adv., Ms. Nidhi Singh, Adv., Mr. Shakib Dhorajiwala, Adv., Mr. Aman Varma, Adv., Ms. Smriti Churiwal, Adv., Mr. Ankur Saigal, Adv., Mr. E.C. Agarwala, AOR, Dr. Bharat Bhushan Parsson, Sr. Adv., Ms. Sonam Priya, Adv., Mr. Vaibhav Mishra, Adv., Mr. Sachin Bajpai, Adv., Mr. E.C. Agrawala, AOR, Mr. Pratap Venugopal, Adv., Ms. Surekha raman, Adv., Mr. Anuj Sarma, Adv., Mr. Aman Shukla, Adv., Ms. Kanika Kalyaiyarasan, Adv., for M/S. K J John And Co, AOR And Mr. Apoorva Bhumesh, AOR, JUDGMENT S. A. BOBDE, J. 1. Leave granted. 2. The auction purchaser ITC Ltd. is before us in the appeals arising out of SLP (C) Nos.10215-10217/2016. The sale of a five star luxury hotel property purchased in a public a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a securitization application (Dated 31.07.2013) before the Debts Recovery Tribunal (hereinafter referred to as the DRT ) against the taking over of the symbolic possession by the creditor. In the meanwhile, the creditor published the first auction sale notice (On 04.09.2013) with a reserve price of ₹ 403 crores which came to be postponed in view of the negotiations between the parties for the repayment of the dues. Upon default in the repayment of the outstanding amount, a second sale notice was published on 09.01.2014 with the same reserve price. The DRT passed an interim order, (Vide order dated 6.02.2014) directing the creditor to defer the acceptance of bids and not to take any further steps for sale of the property for the next 60 days. Subsequently, no bids were received and the auction failed. 7. The creditor challenged the interim order passed by the DRT order before Debts Recovery Appellate Tribunal (hereinafter referred to as the DRAT ). In the challenge, the Appellate Tribunal directed for the second appeal to be disposed off within a month by the DRT. 8. The DRT disposed off the second appeal and set aside the notice under Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed the bids to be received for the sale of the Goa Hotel to be held in a sealed cover till the next date of hearing which was fixed to be on 19.11.2014. However, no bids were received pursuant to the 3 rd Public Auction Notice. 15. In the meanwhile, the debtor wrote to the creditor stating that the corporate loan will be taken over by Hyatt who were the operating service provider for the hotel. Hyatt in turn wrote to the creditor stating that they will not be responsible for the repayment of the loan. On 31.12.2014, a fourth and fresh notice for conducting the auction sale of the Goa Hotel was issued by the creditor setting the reserve price at ₹ 515.44 crores. This notice led to the sale of the Goa Hotel to ITC Ltd. (hereinafter referred to as the auction purchaser ). Findings of the High Court 16. The parties eventually moved the High Court by way of writ petitions in its jurisdiction under Article 226 of the Constitution of India. Three writ petitions were filed:- (i) Writ Petition No. 2698 of 2014 (renumbered as 222 of 2015) was filed on 04.10.2014 by the debtor challenging the order of the DRAT. (Order dated 10.09.2014) (ii) Writ P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this 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 (4). (3) . (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 fifteen days of receipt of such representation or objection the reasons for non-acceptance of the representation or objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) If on examining the representation made or objection raised by the borrower, the secured creditor is satisfied that there is a need to make any changes or modifications in the demand notice, he shall modify the notice accordingly and serve a revised notice or pass such other suitable orders as deemed necessary, within fifteen days from the date of receipt of the representation or objection. (c) If on examining the representation made or objection raised, the Authorized Officer comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within fifteen days of receipt of such representation or objection, the reasons for non-acceptance of the representation or objection, to the borrower.) elaborate on the manner in which the representation of the borrower is required to be dealt with. Section 13 (4) enables any creditor to enforce any security interest without the intervention of a court or tribunal. The procedure prescribed is that after classifying the debt as a non-performing asset, the creditor may, by a notice in writing require the debtor/borrower to discharge his liabilities within 60 days. On receipt of a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 Section 13. Such reasons, overruling the objections of the borrower, must also be communicated to the borrower by the secured creditor. It will only be in fulfillment of a requirement of reasonableness and fairness in the dealings of institutional financing which is so important from the point of view of the economy of the country and would serve the purpose in the growth of a healthy economy. It would certainly provide guidance to the secured debtors in general in conducting the affairs in a manner that they may not be found defaulting and being made liable for the unsavoury steps contained un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he language in which the intent is clothed. In a passage from Crawford s Statutory Construction, it is stated The question as to whether a statute is mandatory or directory depends upon the intent of the Legislature and not upon the language in which the intent is clothed. The meaning and intention of the Legislature must govern, and these are to be ascertained not only from the phraseology of the provision, but also by considering its nature, its design, and the consequences which would follow from construing it the one way or the other. (Passage from CRAWFORD: Statutory Construction, p. 516) This has been followed in several decisions of the Supreme Court (State of U.P.v. Manbodhan Lal Shrivastava, AIR 1957 SC 912, p. 918: 1958 SCR 533; State of U.P. v. Baburam, Upadhya, AIR 1961 SC 751, p. 765 : (1961) 2 SCR 679; Article 143 of the Constitution of India, In the matter of, supra, p. 769; State of Mysore v. V.K. Kangan, AIR 1975 SC 2190, p. 2192: (1976) 2 SCC 895; Govindlal Chhagan-lal Patel v. Agriculture Produce Market Committee, AIR 1976 SC 263, p. 267 : (1976) 1 SCC 369; Ganesh Prasad Sah Kesari v. Lakshmi Narayan, (1985) 3 SCC 53, pp. 59, 60 : AIR 1985 SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide for a locus poenitentiae which requires an active consideration by the creditor and a reasoned order as to why the debtor s representation has not been accepted. 30. Moreover, this provision provides for communication of the reasons for not accepting the representation/objection and the requirement to furnish reasons for the same. A provision which requires reasons to be furnished must be considered as mandatory. Such a provision is an integral part of the duty to act fairly and reasonably and not fancifully. We are not prepared in such circumstances to interpret the silence of the Parliament in not providing for any consequence for non-compliance with a duty to furnish reasons. The provision must nonetheless be treated as mandatory . We agree with the view of this Court in this regard in Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC 311 (para 45, 47, 77 and 80) , Transcore v. Union of India (2008) 1 SCC 125 (para 24 and 25) and Keshavlal Khemchand Sons (P) Ltd. v. Union of India (2015) 4 SCC 770 (para 19 and 61) . We also approve of the view of several High Courts in this regard Kiran Devi Bansal v. DGM SIDBI, AIR 2009 Guj 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of time and enclosed six cheques for upfront payment of ₹ 33.16 crores without making any reference to the notice of taking over of possession. The cheques were dishonoured. (v) On 04.09.2013, the creditor published a Notice of Sale by Public Auction in the newspaper fixing the date of auction as 09.10.2013 at a reserve price of ₹ 403 crores. (vi) Following this the debtor sent a letter to the creditor on 19.09.2013 undertaking that it will repay all outstanding installments by 31.12.2013 and that the sale of assets be deferred up to the said date. The debtor further stated that it shall not proceed further in respect of their Securitization Application before the DRT. (vii) On 08.10.2013, the creditor deferred the sale by issuing a public notice while considering the debtor s proposal. (viii) On 29.10.2013, the creditor granted an opportunity to the debtor to clear the debt as stated in the debtor s letter dated 03.10.2013 wherein it sent forth another proposal for extension of time for repayment stating that it will repay a principal installment of the corporate loan of a total of ₹ 89 crores by 31.12.2013. However, the creditor only extended th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility and must be rejected. The submission that the letter was written without prejudice to the legal rights and remedies available under any law and therefore the acknowledgement or the undertaking has no legal effect must likewise be rejected. This letter is reminiscent of a letter that fell for consideration in Spencer s (Spencer v. Hemmerde [1922] 2 AC 507, HL at 526) case as pointed out by Mr. Harish Salve, as a rule the debtor who writes such letters has no intention to bind himself further than is bound already, no intention of paying so long as he can avoid payment, and nothing before his mind but a desire, somehow or other, to gain time and avert pressure. It was argued in a subsequent case (Bradford and Bingley vs. Rashid [2006]) that an acknowledgment made without prejudice in the case of negotiations cannot be used as evidence of anything expressly or impliedly admitted. The House of Lords observed as follows: But when a statement is used as acknowledgement for the purpose of s. 29 (5), it is not being used as evidence of anything. The statement is not an evidence of an acknowledgement. It is the acknowledgement. Therefore, the without pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny security interest created in agricultural land; (j) . 38. The purpose of enacting Section 31(i) and the meaning of the term agricultural land assume significance. This provision, like many others is intended to protect agricultural land held for agricultural purposes by agriculturists from the extraordinary provisions of this Act, which provides for enforcement of security interest without intervention of the Court. The plain intention of the provision is to exempt agricultural land from the provisions of the Act. In other words, the creditor cannot enforce any security interest created in his favour without intervention of the Court or Tribunal, if such security interest is in respect of agricultural land. The exemption thus protects agriculturists from losing their source of livelihood and income i.e. the agricultural land, under the drastic provision of the Act. It is also intended to deter the creation of security interest over agricultural land as defined in Section 2 (zf) (zf) security interest means right, title or interest of any kind, other than those specified in section 31, upon property created in favour of any secured creditor and includes- (i) any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on Exclusive basis on the Park Hyatt Goa Resort and Spa Hotel Property admeasuring 1, 82, 225 Sq Mtrs with a built up area of 25182 Sq. Mtrs situated at 263 C, Arossim, Canasaulim Goa. The mortgage is thus intended to cover the entire property of the Goa Hotel . Prima facie, apart from the fact that the parties themselves understood that the lands in question are not agricultural, it also appears that having regard to the use to which they are put and the purpose of such use, they are indeed not agricultural. 42. At the outset, it was argued on behalf of the debtor that Section 31(i) is beyond the legislative competence of the Parliament since it is only the State Legislature which is competent to legislate on land under Entry 18 of List II. This contention appears to be completely untenable. Though Section 31(i) exempts agricultural land from the operation of the Act it is not possible to construe such a provision as a legislation on agricultural land. In fact, it is quite the contrary. Moreover, Section 31 (i) is one of the provisions in the Act which has been held by this Court as referable to Entry 45 of List I, in Union of India and Another v. Delhi High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of assets , but its actual condition and intended user which has to be seen for purposes of exemption from wealth-tax . One of the objects of the exemption seemed to be to encourage cultivation or actual utilisation of land for agricultural purposes. If there is neither anything in its condition, nor anything in evidence to indicate the intention of its owners or possessors, so as to connect it with an agricultural purpose, the land could not be agricultural land for the purposes of earning an exemption under the Act. Entries in revenue records are, however, good prima facie evidence. (emphasis supplied ) Similarly, in the case of Kunjukutty Saheb v. State of Kerala (1972) 2 SCC 364 , this Court held as follows: We suppose that something or other can be, and often is, grown on any vacant land, but that would not necessarily make it agricultural land for our purposes. To give an example the possibility of cultivating, or even the actual cultivation of, what is ess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the delivery of symbolic possession amounted to an interruption of adverse possession of a party and the period of limitation for the application of Article 144 of the Limitation Act would start from such date of the delivery. 48. The question, however, whether the creditor could maintain an application of possession under Section 14 of the Act; even though it had taken over only symbolic possession before the sale of the property to the auction purchaser, depends on whether it remained a secured creditor after having done so. Section 2(d) of the Act defines `secured creditor to mean a banking company having the meaning assigned to it in clause (c) of section 5 of the Banking Regulation Act, 1949; Clause 2(L) 2(L) SARFAESI Act includes debts or receivables and any right or interest in the security whether full or part underlying such debt or receivables or any beneficial interest in property vide (L)(i)(iv) (v) (46 2 (l) financial asset means debt or receivables and includes- (i) a claim to any debt or receivables or part thereof, whether secured or unsecured; or (iv) any right or interest in the security, whether fall or part underlying suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to do so till date. There is no doubt that after taking over the property from debtor, the creditor also acquired the right to receive the usufruct of the property i.e. the rent in this case. However, this was an interest in the property which was not at any point of time transferred to the auction purchaser. 50. In this case, the creditor did not have actual possession of the secured asset but only a constructive or symbolic possession. The transfer of the secured asset by the creditor therefore cannot be construed to be a complete transfer as contemplated by Section 8 of the Transfer of Property Act. The creditor nevertheless had a right to take actual possession of the secured assets and must therefore be held to be a secured creditor even after the limited transfer to the auction purchaser under the agreement (Dated 25.02.2015) . Thus, the entire interest in the property not having been passed on to the creditor in the first place, the creditor in turn could not pass on the entire interest to the auction purchaser and thus remained a secured creditor in the Act. Findings of Fraud and Collusion by the High Court 51. Finally, the High Court in its judgment r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditor. The debtor failed to discharge its liabilities and eventually undertook that if the debtor fails to discharge the debt, the creditor would be entitled to take realize the secured assets. 55. As held, we are of the view that non-compliance of sub-section (3A) of Section 13 cannot be of any avail to the debtor whose conduct has been merely to seek time and not repay the loan as promised on several occasions. 56. This Court in the case of State of Maharashtra v. Digambar (1995) 4 SCC 683 observed as follows:- 19. Power of the High Court to be exercised under Article 226 of the Constitution, if is discretionary, its exercise must be judicious and reasonable, admits of no controversy. It is for that reason, a person s entitlement for relief from a High Court under Article 226 of the Constitution, be it against the State or anybody else, even if is founded on the allegation of infringement of his legal right, has to necessarily depend upon unblameworthy conduct of the person seeking relief, and the court refuses to grant the discretionary relief to such person in exercise of such power, when he approaches it with unclean hands or blameworthy conduct. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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