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TMI Blog2020 (1) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... gned notices issued by the respondent-Bank both under Sections 13(2) and 13(4) of the SARFAEASI Act and any relief as sought for can be granted in the facts and circumstances of the present case? HELD THAT:- The material on record clearly depicts that ever since January, 2019 the petitioners had been interacting with the respondent-Bank, several meetings were held and they also participated in the Consortium Bank Meetings as invitees, but they have not paid any amount due especially after January, 2019, when the default started. The petitioners have admitted in their reply dated 10.7.2019 that they have neither made any payment of loan due nor made any effort to regularize the defaulted account in view of the enforcement action taken for recovery of GST dues by the GST Authorities - It is also not in dispute that the petitioners that as on the date of NPA i.e., 29.5.2019, the amount due to the bank was 142,73,29,479.23 ps. Inclusive of the principal amount not paid to the respondent-Bank. On that ground also the writ petition is liable to be dismissed as not maintainable. It is also not in dispute that the petitioners have not made any efforts to pay the amount due to the Bank subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider the explanation of the petitioners dated 10.7.2019 Annexure-AD and 24.7.2019 Annexure-AF strictly in accordance with law and in terms of the law laid down by the Apex Court in the case of Keshavlal Khemchand and Sons Private Limited and others vs. Union of India reported in 2015(4) SCC 770 para-54 especially to classify their account under which category it falls as NPA ; declare that the proceedings under Section 13(2) of the the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, hereinafter referred to as 'the SARFAEASI Act') i.e.., Demand Notice dated 13.5.2019 as per Annexure-AC is not applicable since their account never became NPA, consequently SARFAESI Act, 2002 is not applicable; issue a writ of certiorari to quash the notice dated 13.5.2019 issued under Section 13(2) of the SARFEASI Act, 2002 Annexure-AC and also the rejection of their application vide notice dated 22.7.2019 Annexure-AG issued under Order 13(4) of the SARFEASI Act as illegal, void and in violation of the principles of natural justice; direct the respondents not to take any steps in pursuance of notice of possession dated 22.7.2019 in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of ₹ 24.50 Crores based on pari-passu agreement in which Mr. Mahendra Kumar Singhi and M/s. Suman Singhi have stood as personal guarantors. However, the loan has been sanctioned as per sanction memo dated 3.2.2018 to M/s Steel Hyper Mart India (Pvt.) Ltd. By the Vijaya Bank and the proceedings under the provisions of Section 13(2) of the SARFEASI Act has been commenced through a Demand Notice dated 6.6.2019, Annexure-E. They made representation requesting for enhancement of the work capital limited and the same was revised upto ₹ 162 Crores on 20.12.2018 as per Annexure-F. They deposited the Memorandum of Title Deeds to the Bank on 22.12.2017 and 27.2.2018 as per Annexures-G and H. The account of the petitioners was in healthy condition and there was no default committed by them. In the first week of January, 2019, the Bank had processed and recommended for enhancement of OCC Limit from ₹ 162 Crores to ₹ 225 Crores and ₹ 63 Crores proposed enhancement to be funded by the 3rd Banker - M/s. Canara Bank, M.G. Road, Bengaluru-1 under consortium funding as per their letter dated 1.8.2019 , Annexure-M. On 8.1.2019 when the petitioners requested for reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry bail to both petitioner Nos.2 and 3, who stood as Guarantors to the Banks. Since the petitioners were busy in safeguarding their personal liberty, the entire business was stopped from 9.1.2019 upto the date. 7. It is submitted by the petitioners that the competent authority to waive the interest and to grant reduction in principal loan amount is the discretion of the Board of Directors of the Bank or the Competent Authority of Indian Bank. The Assistant Bank Manager has no jurisdiction to deal with One Time Settlement Application dated 25.4.2019. The rejection of the proposal summarily by the AGM of the Branch on 29.4.2019 is without jurisdiction. They further submit that the transactions in the OCC accounts by the Banks from 10.1.2019 as per the letter dated 17.1.2019 clearly establishes that their had not become NPA and it was because of the arbitrary act of the Bank in stopping the debit transactions in their OCC accounts. Their business had been paralyzed because of the act of the AGM of the Indian Bank. Hence, the condition precedent to apply SARFAESI Act, 2002 was not at all in existence and it is a question of jurisdiction of Enforcement or application of SARFAESI Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eply dated 10.7.2019 from the petitioners in pursuance of the demand notice dated 13.5.2019, issued under Section 13(2) of the SARFAESI Act, 2002 by it for a total sum of ₹ 142,73,29,479.23 ps. (Rupees One Hundred Forty Two Crores, Seventy Three Lakhs Twenty Nine Thousand Four Hundred and Seventy Nine and Twenty Three Paise only) which is based strictly on the relevant loan accounts maintained by the bank and regularly monitored by it's Directors and Financial Personnel from time to time and the said loan account had been operated by the 1st petitioner. Therefore, there is no need for the Authorised Officer to provide breakup of dues or the basis for the interest calculation while issuing the Demand Notice in terms of the SARFAESI Act. It is further contended that the petitioners ever since January, 2019 had been interacting with the respondent-Bank, several meetings were held and also participated including as invitees to the Consortium Banks Meetings, etc. but had not paid any amount especially after January, 2019 when the default started. 12. It is further contended that there is absolutely no necessity for the Bank or it is enjoined in the provisions of the SARFAESI Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan dues. Significantly in the alleged OTS offer letter dated 25.4.2019 as against the loan due of ₹ 141,32,53,484.23 ps. the petitioners had offered a total payment of a ridiculously low amount of ₹ 85 Crores to be paid in several months which is virtually making a mockery of their liability to pay the loan dues to the Bank. Therefore, the petitioners have not come to the Court with clean hands especially after availing sufficient time for regularizing the loan accounts and to interact with the Bank. Therefore, it is contended that the petitioners cannot now contend that there is any deficiency or short fall in the reply of the Bank dated 19.7.2019 to their representation dated 13.5.2019, as per the dictum of the Hon'ble Supreme Court in the case of ITC Ltd., -vs- Blue Coast Hotels Ltd reported in (2018)15 SCC 99, and hence non-compliance of Section 13(3-A) of the SARFAESI Act cannot be of any avail to the debtor whose conduct has been merely to seek time and not to repay the loan as promised on several occasions. The alleged action by the GST Authorities both in Karnataka and Tamilnadu is not a ground for non-payment of amount to the bank within time. The petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by way of Hypothecation Agreement and also Working Capital Consortium Agreement by way of ceding the Pari Passu Charges between both the Banks. The petitioners had fully availed the loan facility and subsequently failed to adhere to the terms and conditions of the sanction and committed the breach by defaulting in repayment. They had not repaid the interest since January, 2019 onwards on the outstanding due amount inspite of repeated requests and reminders by the respondent- Banks and violated the terms and conditions of the sanctioned letter and loan documents. They also failed to regularize the Working Capital Loan Account with respondent No.4. Therefore, respondent No.4 classified their CCH Loan account as NPA on 29.5.2019 due to non-servicing of interest from the last 90 days as per IRAC Norms of RBI. Both the respondents-Banks on 24.4.2019 issued legal notice calling upon the petitioners to pay a sum of ₹ 141,32,53,484.23 to respondent No.1 and ₹ 24,93,08,781/- to respondent No.4 together with future interest at the agreed rate from 1.4.2019, but the petitioners have failed to pay the said loan with interest. Therefore, both the Banks have initiated proceedings b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to notify and classify the account as 'Standard', 'Sub-standard' default and classify as losses and willful defaulters as a pre-requisite for issuance of Demand Notice under the provisions of Section 13(2) of the SARFAESI Act. He would further contend that the petitioners had paid upto date amount due to the Bank, but could not pay after January, 2019 only because of the raid of the GST officials on their office, and godown at Hosur and Bangalore were seized. In view of the raid conducted on 22.1.2019, the bank had voluntarily stopped the transaction in cash credit account and debits were not allowed on 9.1.2019 which was without notice and the petitioners were directed to appear before them on 22.1.2019. Therefore, the petitioners have not committed any default as alleged by the bank so as to attract the provisions of Section 13(2) and 13(4) of the SARFAESI Act. 21. The main grievance of the learned Senior Counsel for the petitioners is that before the due date i.e., on 31.1.2019, the cash credit facility was stopped from 10.1.21019 and it was not a case of NPA. It is the voluntary act of the Bank in stopping the loan facility and the bank had no power to declare as NPA and it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal + interest) would be paid by the Government of India itself under the said Circular to the Banks without any discounting the interest. 25. The learned Senior Counsel further contended that if the secured creditor failed to classify NPA assets, it is treated as arbitrary and the provisions of the SARFAESI Act, 2002 cannot be invoked. Before invocation of the SARFAESI Act, 2002, classification of NPA is mandatory. In the absence of classification of NPA and failure to follow the norms and circular of RBI, at that stage, the writ petition is maintainable and the bar of alternative remedy would not come into picture. 26. The learned Senior Counsel further contended that the petitioners never committed default and it is only at the instance of the GST authorities, who conducted raid on the office of the petitioners' at Karnataka and Tamilnadu, the bank prevented the petitioners from availing cash credit facilities and failed to debit the payments towards the accounts of the petitioners towards loan and amount sent by the customers. Hence the petitioners were prevented from operating their accounts and this act of the secured creditor had lead to non-payment or default being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of currently known facts, conditions and values - highly questionable and improbable. 29. A Reliance is placed upon Guideline 3.2.4- Loss Assets which states that a loss is one where loss has been identified by the bank or internal or external auditors or by the Co-operation Department or by the RBI inspection but the amount has not been written off wholly or partly. In other words, such an asset is considered un-collectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. 30. Relying upon Guidelines - 3.3.1 - Basic considerations, 3.3.2-Advances Granted under Rehabilitation Packages Approved by BIFR/Term Lending Institutions, 3.3.3-Internal System for Classification of Assets as NPA, the learned Senior Counsel contended that the respondents have proceeded to issue the impugned notices in utter violation of the provisions of the RBI Guidelines and therefore, the impugned action cannot be sustained. 31. The learned Senior Counsel further contended that where there has been delay beyond the prescribed period in reporting the fraud to the Reserve Bank of India, the entire provision is requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stopped the borrower from overdrawing the amount and they were not allowed to over draw the loan account. The said stoppage of over drawing from the sanctioned limit had no embargo on the borrower to repay the loan. As on that date, the outstanding due payable by the petitioners to the 1st respondent-Indian Bank was ₹ 137,47,57,028/-. From 30.11.2019 till 30.4.2019, there was no payment of interest, no operation in the account and outstanding due was more than the limit sanctioned by the 3rd respondent-Indian Bank. The statement of accounts produced along with the statement of objections by the 1st respondent clearly depicts that as on 31.1.2019, the outstanding due payable by the petitioners to the 1st respondent-Bank was ₹ 138,61,09,385/-. Therefore, the respondent-Bank issued legal notice to the petitioners on 30.4.2019 calling upon to clear the due amount of ₹ 141,73,29,479/-. On 25.4.2019, the petitioners made proposal of one time settlement to the Indian Bank. On 29.4.2019, the Assistant Manager of the Indian Bank returned the application to the petitioners dated 25.4.2019 rejecting the OTS proposal and advised to clear the entire liability. On 30.4.2019 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right from 1.1.2019 and as they were liable to pay more than 100% of the principal amount with interest, the provisions of Section 31(j) of the SARFAEASI Act as alleged is not applicable to the case of the petitioners. It is further contended that as per the RBI Guidelines, the asset (financial assets means any debt or receivable secured by mortgagor or change on immoveable property, etc., as defined under Section 2(1) of the of the SARFAEASI Act) has been classified as NPA. The Classification of the Asset is purely an internal business of the Bank and as per the Guideline 2.1.2, with a view to move towards International best practices and to ensure greater transparency is '90 days' over due norms for identification of NPAs have been made applicable from the year ended March 31, 2004 i.e. any amount due to the bank under any credit facility, if not paid by the due date fixed by the bank becomes overdue. 35. Relying upon RBI Guidelines 2.1.2 and 4.2 of the RBI Guidelines, it is contended by the learned Senior Counsel for the respondents that the petitioners neither paid the principal amount or the interest for a period of 90 days and therefore, the respondents declared the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the present case?" VII - CONSIDERATION 40. I have given my thoughtful consideration to the arguments advanced by the learned Senior Counsel for the parties and perused the entire material on record carefully. 41. It is not in dispute that the respondent-Bank has sanctioned financial assistance to the petitioners on 27.9.2019 by way of Cash Credit Facility of ₹ 137,50,00,000/- and they had deposited the Title Deeds in respect of the immoveable properties in favour of the Indian Bank-respondent No.1 on 22.12.2017. It is also not in dispute that the 4th respondent-Vijaya Bank communicated the sanction of working capital of ₹ 24.50 Crores to the petitioners on 3.2.2018 and granted permission for ceding Pari Passu charge on primary security and collateral security on Reciprocal basis with the Indian Bank. It is also not in dispute that the petitioners by way of Memorandum of deposit of Title Deeds deposited the title deeds on 27.2.2018 in favour of the Indian Bank and Vijaya Bank in respect of immoveable properties. According to the petitioners, on 9.1.2019 the Revenue Officers in pursuance of the authorization order dated 8.1.2019 carried search and sei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the notice issued under Section 13(2) of the SARFAESI Act which was rejected by the bank, is not challenged Thereby the respondent-Bank has proceeded to issue notice under Section 13(4) of the SARFAESI Act and on that ground alone, the writ petition is liable to be dismissed. 45. The material on record clearly depicts that ever since January, 2019 the petitioners had been interacting with the respondent-Bank, several meetings were held and they also participated in the Consortium Bank Meetings as invitees, but they have not paid any amount due especially after January, 2019, when the default started. The petitioners have admitted in their reply dated 10.7.2019 that they have neither made any payment of loan due nor made any effort to regularize the defaulted account in view of the enforcement action taken for recovery of GST dues by the GST Authorities. It is also not in dispute that the petitioners that as on the date of NPA i.e., 29.5.2019, the amount due to the bank was ₹ 142,73,29,479.23 ps. Inclusive of the principal amount not paid to the respondent-Bank. On that ground also the writ petition is liable to be dismissed as not maintainable. 46. When the matter was ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons for short duration crops, v. the instalment of principal or interest thereon remains overdue for one crop season for long duration crops, 2 DBOD-MC on IRAC Norms - 2015 vi. the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of guidelines on securitisation dated February 1, 2006. vii. in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment. 48. It is also not in dispute that the petitioners have not made any efforts to pay the amount due to the Bank subsequent to declaration of NPA on 30th April, 2019 till today. Therefore, the contention of the learned Senior Counsel for the petitioners that the provisions of the SARFAESI Act is not applicable to the present case, cannot be accepted as the petitioners, who are borrowers have availed and utilized the total sanctioned loan amount of ₹ 137,50,00,000/- and committed default in not paying any interest as well as the principal amount as on 30.4.2019. The petitioners were l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, was not to examine the terms of the bank guarantee and consider the letters of invocation which had been written by the appellant. If the High Court had taken the trouble of examining the documents on record, which had been referred to by the trial court, in its order refusing to grant injunction, the court would not have granted the interim injunction. We also do not find any justification for the High Court in invoking the alleged principle of unjust enrichment to the facts of the present case and then deny the appellant the right to encash the bank guarantee. If the High Court had taken the trouble to see the law on the point it would have been clear that in encashment of bank guarantee the applicability of the principle of undue enrichment has no application. 31. It is unfortunate, that notwithstanding the authoritative pronounce-ments of this Court, the High Courts and the courts subordinate thereto, still seem intent on affording to this Court innumerable opportunities for dealing with this area of law, thought by this Court to be well settled. 51. In the case of Authorised Officer, State Bank of Travancore and Another -vs- Mathew K.C. reported in (2018) 3 SCC 85, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such matters with greater caution, care and circumspection." 15. It is the solemn duty of the court to apply the correct law without waiting for an objection to be raised by a party, especially when the law stands well settled. Any departure, if permissible, has to be for reasons discussed, of the case falling under a defined exception, duly discussed after noticing the relevant law. In financial matters grant of ex parte interim orders can have a deleterious effect and it is not sufficient to say that the aggrieved has the remedy to move for vacating the interim order. Loans by financial institutions are granted from public money generated at the taxpayer's expense. Such loan does not become the property of the person taking the loan, but retains its character of public money given in a fiduciary capacity as entrustment by the public. Timely repayment also ensures liquidity to facilitate loan to another in need, by circulation of the money and cannot be permitted to be blocked by frivolous litigation by those who can afford the luxury of the same. The caution required, as expressed in Satyawati Tondon [United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110 : (2010) 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of this Court, it would amount to judicial impropriety to say the least, for the subordinate courts including the High Courts to ignore the settled decisions and then to pass a judicial order which is clearly contrary to the settled legal position. Such judicial adventurism cannot be permitted and we strongly deprecate the tendency of the subordinate courts in not applying the settled principles and in passing whimsical orders which necessarily has the effect of granting wrongful and unwarranted relief to one of the parties. It is time that this tendency stops." 52. Though the learned Senior Counsel for the petitioners relied upon the judgement in the case of Mardia Chemicals Ltd., -vs- Union of India reported in (2004) 4 SCC 311 regarding paragraphs 37, 44 and 45, the said judgment is not helpful to the petitioners. In the said judgment at paragraph-37, the operative portion clearly states that from what is quite evident that guidelines as laid down by Reserve Bank of India which are in more details, but not necessary to be reproduced here, lay down the terms and conditions and circumstances in which the debt is to be classified as Non-Performing Asset as early as possible. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 under sub-section (4) of Section 13. At the same time, more importantly, we must make it clear unequivocally that communication of the reasons for not accepting the objections taken by the secured borrower may not be taken to give occasion to resort to such proceedings which are not permissible under the provisions of the Act. But communication of reasons not to accept the objections of the borrower, would certainly be for the purpose of his knowledge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort to harsh steps of taking over the management/business of viz. secured assets without intervention of the court. Such a person in respect of whom steps under Section 13(4) of the Act are likely to be taken cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in this case. 24. Section 13(3) inter alia states that the notice under Section 13(2) shall give details of the amount payable by the borrower as also the details of the secured assets intended to be enforced by the bank/FI. In the event of nonpayment of secured debts by the borrower, notice under Section 13(2) is given as a notice of demand. It is very similar to notice of demand under Section 156 of the Income Tax Act, 1961. After classification of an account as NPA, a last opportunity is given to the borrower of sixty days to repay the debt. Section 13(3-A) was inserted by amending Act 30 of 2004 after the judgment of this Court in Mardia Chemicals [(2004) 4 SCC 311] whereby the borrower is permitted to make representation/objection to the secured creditor against classification of his account as NPA. He can also object to the amount due if so advised. Under Section 13(3-A), if the bank/FI comes to the conclusion that such objection is not acceptable, it shall communicate within one week the reasons for nonacceptance of the representation/ objection. A proviso is added to Section 13(3-A) which states that the reasons so communicated shall not confer any right upon the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the person other than the borrower. By way of abundant caution, an Explanation is added to Section 17(1) saying that the communication of the reasons to the borrower by the secured creditor rejecting his representation shall not constitute a ground for appeal to the DRT. However, under Section 17(2), the DRT is required to consider whether any of the measures referred to in Section 13(4) taken by the secured creditor for enforcement of security are in accordance with the provisions of the NPA Act and the Rules made thereunder. If the DRT, after examining the facts and circumstances of the case and the evidence produced by the parties, comes to the conclusion that any of the measures taken under Section 13(4) are not in accordance with the NPA Act, it shall direct the secured creditor to restore the possession/ management to the borrower (vide Section 17(3) of NPA Act). On the other hand, after the DRT declares that the recourse taken by the secured creditor under Section 13(4) is in accordance with the provisions of the NPA Act then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to any on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : - Therefore the said judgment is in no way helpful to the petitioners. 56. In so far as the judgment relied upon by the learned Counsel for the petitioners in the case of Central Bank of India -vs- Ravindra and Others reported in (2002)1 SCC 367 specifically with regard to not following the guidelines by the respondents, it is not the case of the petitioners either in the pleadings or in the arguments for violation of any guidelines issued by RBI, if the petitioners have any complaint against the respondent-Bank for violation of any of the guidelines, it is for them to approach the RBI against the respondent- Bank by establishing that the respondent-Bank has violated the guidelines of the RBI. The respondents- Banks in categorical terms in the Statement of Objections contended that they have followed the procedure as contemplated by the RBI Guidelines. Admittedly in the present case, the petitioners have not paid any single pie towards the interest since January 2019 till April, 2019 and therefore, the said judgment has no application to the facts and circumstances of the present case. 57. In the case of Keshavalal Khemchand and Sons Private Limited and Others -vs- Union of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk of India, National Housing Bank, which are though bodies created under different laws of Parliament enjoying a large amount of autonomy, are still subject to the overall control of the Reserve Bank of India." In so far as paragraph-54 of the said judgment, it is specifically contended by the respondents that they have followed the RBI Guidelines. 59. In so far as the judgment of this Court relied upon by the learned Senior Counsel for the petitioners in the case of M/s. Raja Associates and Others -vs- Union of India and Others in Writ Petition No.16694/2015 D.D. 6th, March, 2008, it has no application to the facts and circumstances of the present case. The respondent- Bank therein had failed to adhere to the earlier directions issued by this Court to consider whether the petitioners' account has been declared as NPA in terms of the RBI Guidelines, the same was not re-considered. Therefore, the said judgment passed in the year 2008 has no application to the facts and circumstances of the present case. 60. The Hon'ble Supreme Court in the case of ITC Limited -vs- Blue Coast Hotels Limited and Others reported in (2018)15 SCC 99 while considering the provisions of Section 13(3-A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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