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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 ..... 3) of section 13 of the SARFAESI Act - Application dismissed. Scope of section 17 of the SARFAESI Act - HELD THAT:- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation, 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 to an individual litigant. 3. The Punjab National Bank (hereinafter referred to as the secured creditor ) has preferred these two letters patent appeals under clause 15 of the letters patent assailing the correctness of the judgment and order dated November 14, 2019 passed by the learned single judge in two connected Special Civil Application Nos. 19918 and 19920 of 2019 whereby the learned single judge dismissed both the writ petitions by a common judgment. 4. As both the appeals have more or less similar facts and identical legal issues, except that the borrowers in the two cases are different, the same are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 6,44,18,748 outstanding in cash credit limit, an amount of ₹ 36,12,391 outstanding in term loan-I account and an amount of ₹ 77,38,309 outstanding in term loan-II account. Thus respondent- bank has claimed a total amount of ₹ 7,57,69,448 outstanding as on November 30, 2014. As per demand notice, account has been classified as non-performing asset on December 27, 2014 as per guide lines issued by the Reserve Bank of India. The respondent-bank has placed on record copy of account pertaining to each account. As per demand notice, the contractual rate of interest is claimed from December 1, 2014 until payment in full is made within a period of 60 days. However, demand notice is silent regarding rate of interest charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 consonance with law, the subsequent proceedings would not sanctify the same. In such a fact situation, the legal maxim 'sublato fundamento credit opus' is applicable, meaning thereby in case a foundation is removed, the super structure automatically falls. 19. Therefore, in view of aforesaid observation of mine, securitisation application is allowed with no order as to costs. The respondent- bank is directed to restore the possession of the property in question. The respondent-bank is at liberty to proceed afresh under the pro visions of the SARFAESI Act, 2002 in accordance with law. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Application Nos. 19920 and 19918 of 2019. The learned single judge vide common judgment and order dated November 14, 2019 dismissed both these special civil applications, confirming the orders of the Debts Recovery Tribunal and the Debts Recovery Appellate Tribunal. The finding as recorded by the learned single judge in paragraph 7.2 is reproduced below : 7.2 The necessity to give the details of the amount becomes more important because even though the agreements were entered into and may be that the respondent borrower was aware of the rate of interest that was needed to be charged, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(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. Parikh, learned senior counsel made elaborate submissions on the point beginning from the enforcement of the SARFAESI Act, the object and purpose of bringing out the said legislation, the scheme of the Act. After referring to the complete scheme of the Act, the submission of Mr. Parikh, learned senior counsel is that the only requirement under section 13(3) of the SARFAESI Act is of providing the amount payable by the borrower and the details of the secured assets intended to be enforced. There is no other mandatory requirement to be incorporated in a notice under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings 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 orders passed by the Tribunal, the Appellate Tribunal and the learned single judge are just, valid and proper. They are in accordance to the statutory provisions of section 13 and its sub-sections of the SARFAESI Act. It is also submitted that there was no other view possible except the view taken by the learned single judge, the Tribunal and the Appellate Tribunal. 21. Mr. Sanjanwala further submitted that the Debts Recovery Tribunal had given opportunity to the secured creditor to issue fresh notice in accordance to law as far back as in June, 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has been classi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situated at Plot No. 7311/1, Near Road No. 8 and 73/B, GIDC, Sachin, Surat (owned by M/s. Telstar Enterprise). 3. Flat No. 5B/502, Brij Ratan Apartment, Near Hotel Gateway, Parle Point, 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 consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice under section 13(2) of the SARFAESI Act has to necessarily contain the details on the above two counts. 29. In so far as the first part is concerned, i. e., regarding the amount payable by the borrowers, if the intention of the Legislature was only to provide the total outstanding amount or the aggregate amount outstanding and payable by the borrowers, the language would have been different. It would not have been necessary to incorporate sub-section (3) in section 13 of the SARFAESI Act. In sub-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 borro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Act and the rules, and require restoration of the management of the business or restoration of possession of the secured assets to the borrower, it may declare such action as invalid and restore possession of the secured assets to the borrower or restore the management of the business to the borrower, as the case may be. As a necessary corollary, sub-section (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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section proceeds on the basis that the borrower is already under a liability and further that, his account in the books of the bank or FI is classified as substandard, doubtful or loss. The NPA Act comes into force only when both these conditions are satisfied. Section 13(2) proceeds on the basis that the debt has become due. It proceeds on the basis that the account of the borrower in the books of bank/FI, which is an asset of the bank/FI, has become non-performing. Therefore, there is no scope of any dispute regarding the 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 sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with the contract between the parties. Needless to say that all such grounds, which render the action of the bank/financial institutions illegal can be raised in the proceedings under section 17 of the Act before the Debts Recovery Tribunal. The learned Additional Solicitor General and learned counsel appearing for banks and financial institutions fairly stated that all the objections which can be legally raised in the reply to the notice under section 13(2) of the Act can also be raised in the proceedings under section 17(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the validity of the notice under section 13(2) and also the procedure prescribed under sub-section (3A) of section 13 of the SARFAESI Act as canvassed by learned counsel for the appellant secured creditor. 40. A reading of section 13(4) of the SARFAESI Act gives power to the secured creditor to take recourse to one or more of the measures provided in clauses (a) to (d) to recover his secured debt only where the borrower fails to discharge his liability in full within the period specified in sub-section (2) thereof. Thus, there has to be 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 fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to exercise all or any of the rights under sub-section (4). The requirements of the notice under sub-section (2) is provided under sub- section (3) which clearly mandates that the notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor. If these details are not provided which are mandatory in nature or which casts a mandate upon the secured creditor to provide such details, the notice would be bad in law, which we have already held above. 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 borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have to think twice before engaging in such litigation, as the one before us. 47. The appellant secured creditor ought to have at the first instance corrected its mistake by issuing a fresh notice providing the details of the amount payable by the borrower as also correcting the details of the secured assets rather than continuing to challenge it repeatedly before every possible forum and wasting its time. The litigation is ultimately going to cause suffering to the appellant-bank, i. e., secured creditor. 48. The Supreme Court in the case of Dnyandeo 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal system is not exploited by those who use the forms of the law to defeat or delay justice. We commend all courts to deal with frivolous filings in the same manner. 49. In Union of India v. Pirthwi Singh reported in [2018] 16 SCC 363, the Supreme Court observed thus : 15. To make matters worse, in this appeal, the Union of India has engaged 10 lawyers, including an Additional Solicitor General and a Senior Advocate ! This is as per the appearance slip submitted to the registry of this court. In other words, the Union of India has created a huge financial 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 lit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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