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TMI Blog2021 (3) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... s the appellant-bank, a nationalised bank before us, to engage in such frivolous, vexatious and impractical litigation demonstrates the gross indifference of the administration towards litigative diligence. 2. The present litigation initiated by the appellant-bank, right from the inception has resulted only in loss of the time of the various judicial forums that have been approached by the appellant-bank and is also a drain on the public exchequer. What perplexes us most, is that in such financial matters, the objective is quick recovery and lowering the possibility of losses. However, by engaging in the present litigation, the attitude adopted by the appellant-bank and its officers has borne results that are against the interests of the bank and a matter that could have been laid to rest by rational thinking has been unnecessarily dragged for 3 years. When such litigation reaches our doorsteps, we feel exasperated by the inaction or rather the wrongful action and by the policy of blindly engaging in litigation before various judicial forums as entities such as the appellant-bank before us are expected to exercise finer sense and sensibility in their litigation policy, as compared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Application Nos. 47 and 48 of 2015 under section 17 of the SARFAESI Act assailing the notice under section 13(2), (4) and the action taken under section 14 on various grounds. These applications were responded by the secured creditor and pleadings were exchanged. 7. The Debts Recovery Tribunal vide judgment and order dated June 22, 2017 set aside the demand notice under section 13(2) of the SARFAESI Act and all consequential proceedings and further directed the secured creditor to restore the possession with the liberty to proceed afresh in accordance to law. The finding of the Tribunal was that the notice was not in accordance with the statutory provision provided in section 13(3) of the SARFAESI Act as it did not contain the details of the amount due and also the correct details of the secured assets. It would be worthwhile to quote paragraphs 9 and 17 to 19 of the Tribunal's judgment which read as follows : "9. The respondent-bank issued demand notice dated December 29, 2014 under section 13(2) of the SARFAESI Act, 2002 for an amount of Rs. 6,44,18,748 outstanding in cash credit limit, an amount of Rs. 36,12,391 outstanding in term loan-I account and an amount of Rs. 77 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case, the Authorized Officer has given only amount sanctioned and payable by the borrower. He has not provided rate of interest at which the amount has been claimed prior to December 1, 2014. The respondent-bank has charged penal interest and capitalized the same time and again on monthly basis. The Authorized Officer was having opportunity to explain the details while deciding objection of the applicant and to assure applicants that amount inflated due to compounding penal interest will be excluded. But he has failed to avail opportunity to justify his action on the objection raised by the applicant. The details of secured asset are not as per mortgage deed No. 489, dated February 7, 2013. Therefore, the Authorized Officer has failed to comply mandatory provision of section 13(3) of the SARFAESI Act 2002. Therefore, demand notice dated December 29, 2014 is not sustainable at law and same is hereby quashed and set aside. 18. Since demand notice has been set aside as above, further action of the respondent-bank consequent upon demand notice dated December 29, 2014 is also quashed and set aside. It is settled legal proposition that if initial action is not in consonan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Debts Recovery Appellate Tribunal, Mumbai, vide judgment and order dated August 23, 2019 dismissed both the appeals of the secured creditor. The findings recorded by the Appellate Tribunal and the observations made are recorded in paragraph 4 of the judgment in Appeal No. 130 of 2017. It is relevant to state here that similar observations are recorded in paragraph 4 of the judgment in Appeal No. 131 of 2017. The Appellate Tribunal made observations against the bank in paragraph 4 of its judgments, as such, the same is reproduced below : "4. When the Tribunal below specifically recorded a finding that bank has not followed section 13(3) of the SARFAESI Act, the Legal Department of the Bank, before recommending to file appeal, should have examined the notice dated December 29, 2014 with reference to provisions of the SARFAESI Act. If the appellant has issued a fresh 13(2) notice immediately after the disposal of the S. A. rectifying the mistake, by this time other steps could have been completed and the bank might have realized money by this time." 11. Aggrieved by the judgment of the Debts Recovery Appellate Tribunal, the secured creditor preferred two Special Civil Applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t payable in the form of the principal amount outstanding, interest payable on it for different periods whether at flat or floating rates, any penal interest, the amount of costs, etc., or any other amount under any other head which would be chargeable from the borrowers. Even with respect to the details of the secured assets, the secured creditor did not care or deem it proper to correct it. 15. The Debts Recovery Tribunal, the Debts Recovery Appellate Tribunal and the learned single judge of this court concurrently and consistently based upon bare perusal of section 13(3) of the SARFAESI Act as also the law on the point held against the secured creditor. The secured creditor instead of correcting its mistake as had been pointed out by the Tribunal, the Appellate Tribunal and the learned single judge, has now filed the present appeals and has sought to canvass that it was not necessary for the secured creditor to provide the breakup of the outstanding amount and mention of one single figure would be due compliance of the provisions under section 13(3) of the SARFAESI Act. Further, according to the appellant, secured creditor, the details of secured asset are also correct. 16. Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einabove, having gone through each of them we may say with respect that they have no application in the facts and circumstances of the present case and the legal issues relevant for the present proceedings. 19. Mr. Parikh in his written submission has also referred to in detail regarding the one-time settlement offered, the possession having been taken by the secured creditor after the order under section 14 of the SARFAESI Act was passed, thereafter the borrowers having re-entered into possession and thereby committing contempt for which separate proceedings were being initiated and about the ownership of one of the properties mortgaged. In our considered opinion, all these facts are not relevant for deciding the present controversy and they pale into insignificance and become irrelevant once the Debts Recovery Tribunal's order for setting aside the notice under section 13(2) of the SARFAESI Act and further directing the secured creditor to restore the possession of the property to the borrowers having remained unaltered by the Appellate Tribunal and the learned single judge. 20. On the other hand, Mr. Sanjanwala, learned senior counsel for the borrowers submitted that the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... First point : Details to be mentioned (section 13(3)) 25. The notice dated December 29, 2014 under section 13(2) issued by the appellant-bank is reproduced below : "Dated : December 29, 2014 By Regd. AD To, 1. M/s. Mithilanchal Industries P. Ltd., Plot No. 503, Road No. 4, GIDC, Sachin, Surat-394 230. 2. M/s. Mithilanchal Industries P. Ltd., Plot No. 7311/1, Road No. 75B, GIDC, Sachin, Surat-394 230. 3. M/s. Mithilanchal Industries P. Ltd., 2nd Floor, Plot No. C-46/47, City Industrial Estate, Near Swaminarayan Temple, Udhna, Surat-394 510. Dear Sir, Notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). Reg : Credit facilities availed by M/s. Mithilanchal Industries P. Ltd. our branch office : Surat-Main. You, M/s. Mithilanchal Industries P. Ltd., has availed the following credit facilities. Sl. No. Facility Limit (Rs. in lakhs) Balance O/s as on 30-11-2014 (Rs.) 1. Cash credit 600.00 6,44,18,748 2. T/L 1 89.36 36,12,391 3. T/L 2 90.41 77,38,309 Total 779.77 7,57,69,448 Due to default in payment of instalment/interest/principal debt, the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int, Surat (owned by Shri Vivekanand D. Jha and Smt. Vibha Vivekanand Jha). Please take notice that in terms of section 13(13) of the said Act, you shall not, after receipt of this notice, transfer by way of sale, lease or otherwise (other than in the ordinary course of business) any of the secured assets above referred to, without prior written consent of the bank. You are also put on notice that any contravention of this statutory injunction/restraint, as provided under the said Act, is an offence. If for any reason, the secured assets are sold or leased out in the ordinary course of business, the sale proceeds or income realized shall be deposited/remitted with/to the bank. You will have to render proper account of such realization/income. *We reserve our rights to enforce other secured assets Please comply with this demand under this notice and avoid all unpleasantness. In case of non-compliance, further needful action will be restored to, holding you liable for all costs and consequences. This notice is issued without prejudice to the bank taking legal action before DRT/court, as the case may be. Yours faithfully, For Punjab National Bank, Sd/- Mayur Sheth, Chie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (2) of section 13 of the SARFAESI Act, it is also mentioned that the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor. The said liabilities would be mentioned in view of the provisions of sub- section (2) itself. But, consciously, sub-section (3) was incorporated so as to ensure that the details of the amount payable are provided in the notice. Such details would include the relevant calculations made by the bank under different heads which had become due and payable at the end of the borrower. 30. There is another reason for incorporating sub-section (3). Sub-section (3A) gives right to the borrower to make a representation or raise an objection against the notice under sub-section (2). Unless the borrower has the details of the amounts found due and payable by the secured creditor and being demanded as such under a notice under sub-section (2), the borrower would not be in a position to make any representation or raise any objection. It is only when the amounts under different heads are provided to the borrower that it could raise objection under any of the heads where the borrower finds that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (4) of section 17 provides that if the Tribunal declares that the recourse taken by the secured creditor under sub-section (4) of section 13 was in accordance with the provisions of the Act and the rules made thereunder, then, notwithstanding anything contained in the Act or any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt. 34. On a plain reading of section 17, it is seen that the Tribunal has wide powers to restore possession in favour of the borrower, if such action taken under sub-section (4) of section 13 is declared invalid. Even where the property is sold or dealt with, pending hearing of the application under section 17, the Tribunal is not rendered powerless to restore possession in favour of the borrower, if such action taken under sub-section (4) of section 13 is declared invalid. In such an eventuality, sub-section (3) of section 17 gives ample powers to the Tribunal to direct restoration of the possession or restoration of management, as the case may be or to pass such other order, as it may consider proper and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liability . . . There is a difference between accrual of liability, determination of liability and liquidation of liability . . . The point to be noted is that the scheme of the NPA Act does not deal with the disputes between the secured creditors and the borrower. On the contrary, the NPA Act deals with the rights of the secured creditors inter se. The reason is that the NPA Act proceeds on the basis that the liability of the borrower has crystallized and that his account is classified as non-performing asset in the hands of the bank/FI . . . 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 pos session/management to the borrower (vide section 17(3) of the NPA Act). On the other hand, after the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the Act. It would be for the Debts Recovery Tribunal to decide in each case whether the action of the bank is in accordance with the provisions of the Act and is legally sustainable." 37. As can be seen from the Statement of Objects and Reasons of the Securitisation Act, the main purpose of the Securitisation Act, and in particular section 13 thereof, is to enable and empower the secured creditors to take possession of their securities and to deal with them without the intervention of the court. Therefore, in an application under section 17, the Tribunal is concerned only with the validity of the acts of the secured creditor in taking possession of the securities and dealing with the same under section 13. In our opinion, all such grounds, which would render the action of the bank/financial institution illegal, can be raised before the Tribunal in the proceedings under section 17. It is for the Tribunal to decide in each case whether the action of the bank was in accordance with the provisions of the Act and legally sustainable. However, we hasten to add that while considering the question of validity of the action of the bank, it is not necessary for the Tribunal to adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a failure on the part of the borrower to comply with the terms mentioned in sub-section (2). Failure to comply with sub-section (2) would entail a prior duty/obligation on the part of the secured creditor to strictly comply with the terms mentioned therein, that is a valid notice. The notice would be valid only upon complying with the conditions of sub-section (3). Once the action taken at the stage of section 13(4) of the SARFAESI Act is questioned under section 17 thereof, then the first and foremost thing to be tested would be the valid action by the secured creditor under sub-section (2) of giving a valid notice and there- fore, there is failure on the part of the borrower to discharge his liability. Now in the present case, if the liability itself is not validly communicated by the secured creditor, there could not be a failure on the part of the borrower. The Tribunal, therefore, would be well within its powers to test the validity of the notice under section 13(2) of the SARFAESI Act. Further analysis on both the points 41. The action/recourse taken under section 13(4) by the secured creditor would be dependent upon its validity and legally justified action having been t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve. 44. In the present case, the borrower took an objection of non-compliance of sub-section (3), in his objection/representation given sub-section (3A), but despite the same the bank-secured creditor in the present case rejected the objection instead of ensuring the compliance of sub-section (3). A perusal of the notice under sub-section (2) which is already reproduced above does not spell out the details of the amount payable by the borrower, but only mentions a lump sum aggregate amount. The dispute with regard to rate of interest being charged by the bank was pre-existing the stage of section 13, and therefore, when the borrower called upon the secured creditor to provide the details, as a fair and reasonable secured creditor-the appellant-bank ought to have come out with such details, justification of such details would be a different aspect, but the bank could not withhold the details. Even the details of the secured assets had not been correctly provided as recorded by the Tribunal, which finding has not been altered or upset at any subsequent stage. If the bank withholds the details, as in the present case, then such action cannot be sustained. 45. The above discussion fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Sabaji Naik v. Pradhya Prakash Khadekar reported in [2017] 5 SCC 496 has frowned upon frivolous and groundless filings. We quote the relevant observations (page 504) : "13. This court must view with disfavour any attempt by a litigant to abuse the process. The sanctity of the judicial process will be seriously eroded if such attempts are not dealt with firmly. A litigant who takes liberties with the truth or with the procedures of the court should be left in no doubt about the consequences to follow. Others should not venture along the same path in the hope or on a mis placed expectation of judicial leniency. Exemplary costs are inevitable, and even necessary, in order to ensure that in litigation, as in the law which is practised in our country, there is no premium on the truth. 14. Courts across the legal system-this court not being an exception-are choked with litigation. Frivolous and groundless filings constitute a serious menace to the administration of justice. They consume time and clog the infrastructure. Productive resources which should be deployed in the handling of genuine causes are dissipated in attending to cases filed only to benefit from delay, by prolonging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability by engaging so many lawyers for an appeal whose fate can be easily imagined on the basis of existing orders of dismissal in similar cases. Yet the Union of India is increasing its liability and asking the taxpayers to bear an avoidable financial burden for the misadventure. Is any thought being given to this ? 16. The real question is : When will the Rip Van Winkleism stop and Union of India wake up to its duties and responsibilities to the justice delivery system ? 17. To say the least, this is an extremely unfortunate situation of unnecessary and avoidable burdening of this court through frivolous litigation which calls for yet another reminder through the imposition of costs on the Union of India while dismissing this appeal. We hope that someday some sense, if not better sense, will prevail on the Union of India with regard to the formulation of a realistic and meaningful National Litigation Policy and what it calls 'ease of doing business', which can, if faithfully implemented benefit litigants across the country." 50. We accordingly are of the view that this matter requires costs to be imposed upon the appellant-bank which we quantify at Rs. 5 lakhs per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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