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2008 DIGILAW 454 (ORI)

City Palace Resorts Ltd. v. Union of India

2008-06-20

B.P.DAS, M.M.DAS

body2008
Judgement M. M. DAS, J. :- The petitioner in this writ petition has called in question the notice dated 9-1-2007 issued under Section 13 (2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, 'the Act') under Annexure-9 and has prayed for quashing the said notice and further directing the Bank to accept the proposal of the petitioner dated 1-3-2007 under Annexure-11 to the writ petition. 2. The petitioner, which is a private limited company, claims to have established a Hotel on its property situated in a prime locality of the City of Cuttack, which was fully furnished with all modern amenities but was not doing adequate business. The petitioner's case is that at this juncture, the opp. party No. 3 was in the look-out for a suitable premises for operating the Cuttack City Branch of the State Bank of India and finding the property of the petitioner to be suitable, the opp. party No. 3 proposed to take the same on rent in order to make the premises suitable for the accommodation of the Bank. The petitioner claims to have removed all intervening walls and toilets and to have reconstructed the flooring as well as made provision for a strong room. This, according to the petitioner, required huge amount. As the petitioner could not provide the same, the Bank proposed to advance term loans in favour of the petitioner with a further condition that the loan would be fully repaid from the rentals payable by the Bank. The petitioner accepted the proposal and accordingly, the Bank sanctioned two term loans of Rs. 25.00 lakhs and Rs. 28.00 lakhs on 1-12-2001 and 31-5-2002 respectively. On availing the said loan, the petitioner claims that it made alteration in the structure of the building for convenience of the occupation of the Bank. The petitioner also provided additional space for opening the ATM counter of the Bank and for placing the generator and the currency chest. The petitioner has further claimed that a sum of Rs. 31.00 lakhs has been repaid towards the loans availed by the petitioner whereafter the Bank issued a letter expressing its desire to terminate the tenancy. The petitioner also provided additional space for opening the ATM counter of the Bank and for placing the generator and the currency chest. The petitioner has further claimed that a sum of Rs. 31.00 lakhs has been repaid towards the loans availed by the petitioner whereafter the Bank issued a letter expressing its desire to terminate the tenancy. The petitioner protested to such termination of tenancy, but since there was no response from the Bank, upon the petitioner gathering that the intention of the Bank is to vacate the building, instituted a Civil Suit No. 312 of 2005 before the learned Civil Judge (Sr. Division) First Court, Cuttack seeking the following reliefs :- "(a) Let it be declared that the letter of termination dated 13-5-05 is invalid and illegal and parties are not to act upon the same. (b) Let the defendant be injuncted by a decree of injunction from terminating the tenancy till the loan advanced to the Plaintiff is liquidated in full. (c) That the cost of the suit be decreed in favour of Plaintiff and against the defendant. (d) Any other relief/reliefs that the Plaintiff may be found entitled in law be decreed in its favour, for which, if necessary, Plaintiff undertakes to pay further Court fees". The aforementioned suit is sub judice and against an application filed for ad interim injunction, the matter is pending before this Court in FAO No. 325 of 2005, wherein an order to maintain status quo has been passed. The petitioner alleges that the order of status quo has been violated by the Bank and they are liable to be dealt with for violation of the said order. On 22-2-2006, the Bank issued a notice to the petitioner recalling the loans, to which the petitioner claims to have responded by its letter dated 27-2-2006. The Bank issued a notice dated 9-1-2007 under Section 13 (2) of the Act which has been made as Annexure-9 to the writ petition. On receiving the said notice, the petitioner claims to have sent a reply on 26-2-2007. It is further stated by the petitioner that by its letter dated 1-3-2007, the petitioner offered to settle the dispute and cut short the litigation. On receiving the said notice, the petitioner claims to have sent a reply on 26-2-2007. It is further stated by the petitioner that by its letter dated 1-3-2007, the petitioner offered to settle the dispute and cut short the litigation. As there was no response from the Bank to the proposal and, rather, it was declared that the Bank will initiate action under Section 13 (4) of the Act, the petitioner, being aggrieved, has preferred the present writ petition for appropriate relief. 3. A counter affidavit has been filed on behalf of the Bank. It has been stated in the counter affidavit that upon receiving the reply of the petitioner to the notice under Section 13 (2) of the Act, on careful consideration of the same, the opp. party No. 3 on 28-2-2007 rejected the said objection of the petitioner and communicated its decision to the petitioner by the letter dated 5-3-2007, which was received by the petitioner on the same day. It has been also contended in the counter affidavit that the petitioner having not exhausted the statutory remedy of appeal provided under Section 17 of the Act, the writ petition is not maintainable. The Bank has asserted that in spite of ample opportunity being granted to the petitioner as the petitioner did not liquidate the loan dues, notice under Section 13 (2) of the Act has been issued in accordance with law, pursuant to which, the objection filed by the petitioner has also been rejected. 4. With regard to the facts averred in the writ petition, the opp. parties 2 and 3 have stated in the counter affidavit that it is only the petitioner on agreeing to provide accommodation to the Bank, the Bank entered into an agreement with the petitioner and started functioning of the said Branch in the extended premises from the year 1990. On expiry of each of the agreements, fresh agreements were being entered into. Last of such agreement was executed on 20-8-2001, which was given effect to from 1-5-2000 for a period of five years. In the agreement, it was agreed that monthly rent will be paid at the rate of Rs. 65,000/-. Copy of the said agreement has been annexed as Annexure A/2 to the counter affidavit. Last of such agreement was executed on 20-8-2001, which was given effect to from 1-5-2000 for a period of five years. In the agreement, it was agreed that monthly rent will be paid at the rate of Rs. 65,000/-. Copy of the said agreement has been annexed as Annexure A/2 to the counter affidavit. Much after the commencement of the tenancy, the petitioner on 30-11-2001 applied to the Bank for a term loan to purchase land and building at Bhubaneswar and to renovate the existing building at Cuttack. In the said application for loan, the petitioner suggested for repayment of the loan dues from the rental income from the State Bank of India, Cuttack City Branch, and rental income from Cuttack Sweets Stall and rental income from other occupants. The petitioner also agreed for payment of the instalments towards loan dues from its business source and also due appraisal of the loan application, the Bank sanctioned term loan of Rs. 25.00 lakhs on 1-12-2001 wherein it was stipulated that the entire loan amount will be repaid within five years from the date of disbursement of the same at monthly instalments of Rs. 60,000/-. Accepting the suggestion of the petitioner, the Bank agreed that the rental part of the building, leased out to the Bank by the petitioner, will be adjusted towards the loan outstanding till the liquidation of the loan. On execution of the required documents, the loan amount was released. Again on 8-5-2002, the petitioner applied for sanction of loan of Rs. 20.00 lakhs for renovation of its Bhubaneswar building and agreed for repayment of the instalments from its business. On appraisal of the said proposal by sanction order dated 31-5-2002, the Bank sanctioned a further term loan of Rs. 20.00 lakhs which was stipulated to be repaid in instalments at the rate of Rs. 23,850/- + interest, within a period of seven years. It was also stipulated therein that the rental part of the building leased out to the Bank will be adjusted towards the loan outstanding till liquidation of the loan. Upon such sanction, necessary documents were executed by the petitioner and its guarantors. Thus, the petitioner was required to pay instalments of Rs. 60,000/- and Rs. 23,850/- + interest part monthly for the two loans. Upon such sanction, necessary documents were executed by the petitioner and its guarantors. Thus, the petitioner was required to pay instalments of Rs. 60,000/- and Rs. 23,850/- + interest part monthly for the two loans. Though the rental of the building under occupation of the Bank was adjusted towards the loan amount, but the balance amount of the instalment was not paid by the petitioner. 5. Mr. G. Mukherji appearing on behalf of the petitioner vehemently argued that the object and reason of the Act is for empowering the Banks to take possession of the securities in the event of default in payment / non-payment of dues, only when the loan account is classified as a non performance account (NPA) in accordance with the guidelines of the Reserve Bank of India. He further contended that the object of the statute is clear that the provisions thereof cannot be applied where 80% of the loan has been repaid. Mr. Mukherji made an endeavour to persuade us by submitting that in view of the promise of the Bank contained in Annexures-1 and 2 to the effect that the rentals receivable by the petitioner will be adjusted towards the loan amount till liquidation of the loan, issuance of any notice recalling the loan account and demanding full repayment of the outstanding dues, clearly amounts to be a breach of the contracts between the parties. He further submitted that as a matter of fact, it would be seen that the Bank failed to remit the rent of the tenanted premises after September, 2005 and the Bank, therefore, cannot attribute the act of default in repayment of the loan amount, to the petitioner and also the Bank cannot take advantage of the breach committed by it with the avowed purpose to show that there has been negligence on the part of the petitioner in repayment of the loan dues. Our attention was drawn to Section 2(j) of the Act wherein the word 'default' has been defined to mean nonpayment of any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified as non-performing asset in the books of account of the secured creditor. 6. Relying upon the above provision, Mr. 6. Relying upon the above provision, Mr. Mukherji submitted that had the Bank continued remittance of the rent for the premises under its occupation, after September, 2005 there could not have been any question with regard to non-payment of the loan dues as it was stipulated in the contract that the rental value of the premises shall be paid by the Bank and adjusted towards the loan dues. Learned counsel further drew our attention to the provisions of Section 31(j) of the Act, which specifies that the provisions of the Act shall not apply to any case in which the amount due is less than 20% of the principal amount and the interest thereon. 7. The theory of estoppel has also been attempted to be drawn into service in the facts of the case, by the learned counsel and on that basis it has been submitted that while sanctioning the loan, the Bank held out a promise that the rent from the portion of the building leased out to the Bank shall be adjusted towards the loan amount till liquidation of the loan in full and it was on this basis, the petitioner altered his possession by incurring the loan liability. It was, therefore, contended that the petitioner having changed his possession on the promise of the Bank, the Bank is estopped from going in a reverse gear by demanding the outstanding loan amount, after stopping payment of the rent. 8. Mr. G. B. Dash, learned counsel appearing for the Bank relying upon the assertions made in the counter affidavit, per contra, contended that two agreements were executed between the parties, one being with regard to the Branch premises and the other in respect of the premises where the Bank's ATM has been placed. The petitioner has filed a properly constituted civil suit challenging the action of the Bank in terminating the lease agreement in respect of the Branch premises. The question with regard to the grant of interim injunction is now pending before this Court in FAO No. 325 of 2005, wherein this Court has directed the parties to maintain status quo. It was further submitted that in the meantime the Bank has vacated the leasehold premises where the Branch was functioning, on 24-8-2005 and shifted the Branch to a new premises. It was further submitted that in the meantime the Bank has vacated the leasehold premises where the Branch was functioning, on 24-8-2005 and shifted the Branch to a new premises. With regard to the lease agreement in respect of the ATM counter, as per the terms of the said agreement, the Bank issued three months termination notice on 31-5-2006. It was received by the petitioner on 1-6-2006 and thereafter the Bank vacated the said ATM counter premises with effect from 31-8-2006. It was in this context that the Bank paid up-to-date rent for the lease hold premises till the end of August, 2005. 9. We have considered the various agreements executed between the parties annexed to the writ application. We also find that the petitioner has filed the Civil Suit No. 312/ 2005(11) before the Civil Judge (Senior Division), First Court, Cuttack claiming the reliefs as already quoted above. The cause of action for filing the suit has been mentioned in paragraph 21 of the plaint (Annexure-5) which reads as follows : "That the cause of action for filing the suit arose after 18-4-2005 when the defendant failed to renew the lease agreement, on 1-5-2005 when a new tenancy for 5 years was impliedly created by conduct of parties, on 13-5-2005 when notice of termination was given and each date thereafter when the plaintiff failed in his attempt to persuade the defendant from withdrawing letter dated. 13-5-2005." 10. The notice under Section 13(2) of the Act was issued by the Bank on 9-1-2007. We find that the plaint was verified and filed on 1st August, 2005 and the Bank vacated the premises on 24-8-2005, i.e. a few days after filing of the suit. The petitioner has alleged that in spite of an order of status quo passed by this Court on 30-9-2005 in F. A. O. No. 325 of 2005, the Bank has flouted the said order. 11. In essence, therefore, the following questions arise for determination in this case. (i) Whether the provisions of the Act can be made applicable to the facts of the case? (ii) Whether the theory of estoppel can be applied as contended by the learned counsel for the petitioner, in this case? 11. In essence, therefore, the following questions arise for determination in this case. (i) Whether the provisions of the Act can be made applicable to the facts of the case? (ii) Whether the theory of estoppel can be applied as contended by the learned counsel for the petitioner, in this case? (iii) Whether in view of the pendency of a properly constituted civil suit filed by the petitioner as well as the case being based on disputed questions of facts and there being an effective alternative remedy, the writ petition can be maintained or not? 12. We addressed ourselves to the aforesaid questions by referring to the various annexures made by the respective parties to the writ petition and the counter affidavit. 13. Considering the same and the submissions made by the respective counsel for the parties, we find that the petitioner in the Civil Suit has, in effect, raised all the questions, which have been raised before us and has prayed for declaring the termination of tenancy by the letter of the Bank dated 13-5-2005 to be invalid and illegal inasmuch as to injunct the defendant Bank from terminating the tenancy till the loan incurred by the plaintiff petitioner is liquidated in full. We further find that recording any conclusion with regard to performance of the respective parts of the contracts (lease agreements) by the respective parties, would be prejudging the issues involved in the pending suit before the common law forum. We, therefore, decline to interpret the said contracts and record our conclusions thereon as contended by learned counsel for the petitioner. The question as to application of the theory of estoppel, in the facts of the case, being also based upon interpretation of the agreements between the parties, which is the subject-matter of the civil suit, we desist ourselves from giving a conclusive finding as to whether the Bank is estopped from terminating the lease or not. The question as to application of the theory of estoppel, in the facts of the case, being also based upon interpretation of the agreements between the parties, which is the subject-matter of the civil suit, we desist ourselves from giving a conclusive finding as to whether the Bank is estopped from terminating the lease or not. With reference to point No. (iii), it is seen from the counter-affidavit filed by the Bank that even assuming that the loan was to be liquidated by adjusting the monthly rent payable by the Bank to the petitioner towards the loan account, but the installments payable by the petitioner towards the two term loan accounts were more than the rental value of the premises and the petitioner is stated to have not deposited the balance amount of the instalment whereby the loan account became a sticky one. It has been asserted in the counter affidavit that repeated letters were issued to the petitioner to regularize the loan accounts. But it having failed to do so, the accounts became NPA on 31-5-2004. 14. It is further seen that before issuing the notice under Section 13(2) of the Act, the Bank issued another notice intimating the petitioner and the guarantors that as on 22-2-2006, the outstanding unpaid amount in the loan account was Rs. 23,54,749.11 paise. In the said letter, the Bank called upon the petitioner to pay the said outstanding amount within 15 days from the date of receipt of the said notice (refer Annexure-7). The Bank thereafter, there being failure on the part of the petitioner to clear the outstanding dues, issued the impugned notice under Section 13(2) of the Act. 15. As we find that in the case of Mardia Chemicals Ltd. and others v. Union of India and others (2004) 4 SCC 311 : ( AIR 2004 SC 2371 ), the Supreme Court, while disposing of a batch of writ petitions wherein the vires of the provisions of Section 13 of the Act was challenged, interfered with the same to a limited extent, by holding that the borrowers should get a reasonable, fair deal and opportunity to get the matter adjudicated upon before the Debts Recovery Tribunal. The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned provisions of the Act cannot be said to be unconstitutional in view of the fact that the object of the Act is to achieve speedier recovery of the dues declared as NPAs and better availability of capital liquidity and resources to help in growth of the economy of the country and welfare of the people in general which would subserve the public interest. 16. With the aforesaid conclusion, the Supreme Court subject to its finding given in paragraph 80 of the judgment upheld the validity of the Act and its provisions except that of sub-section (2) of Section 17 of the Act and declared the said provisions as ultra vires to Article 14 of the Constitution. It further clarified that where a secured creditor has taken action under section 13(4) of the Act, it would be open to the borrowers to file appeals under Section 17 of the Act within the time prescribed therefor. In paragraph-80 of the judgment, it was held that under sub-section (2) of Section 13 of the Act, it is incumbent upon the secured creditor to serve 60 days' notice before proceeding to take any of the measures as provided under sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever, brief they may be, must be communicated to the borrower. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debts Recovery Tribunal under Section 17 of the Act, at that stage. On measures having been taken under sub-section (4) of Section 13 and before the date of sale/auction of the property, it would be open for the borrower to file an appeal under Section 17 of the Act before the Debts Recovery Tribunal. The Tribunal thereupon, in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition as it may deem fit and proper to impose. The Tribunal thereupon, in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition as it may deem fit and proper to impose. The requirement of deposit of 75% of the amount claimed before entertaining an appeal under Section 17 of the Act being an oppressive, onerous and arbitrary conditions against all the canons of the reasonableness, the said condition was declared to be invalid and was struck down by the Supreme Court. 17. The above conclusion of the Supreme Court clearly shows that a 60 days' notice under Section 13(2) of the Act, if served on the borrower, and the borrower raises any objection or pleads any fact for consideration of the secured creditor, the same should be considered with due application of mind and the reasons for not accepting the said objections/facts, howsoever, brief must be communicated to the borrower. It is no doubt true that the Supreme Court held that the borrower would have no right of appeal against non acceptance of his objection by the secured creditor at that stage and the communication made by the secured creditor assigning the reasons for not accepting the objection is only for the information/knowledge of the borrower. Since the borrower has a right of appeal under Section 17 of the Act before the Debts Recovery Tribunal, on measures being taken under Section 13 (4) of the Act, we are of the view that in such an appeal, if preferred by the borrower, the Debts Recovery Tribunal can examine the reasons given by the secured creditor for not accepting the objection filed by the borrower pursuant to the notice under Section 13(2) of the Act. 18. In the instant case, notice under Section 13(2) of the Act was issued to the petitioner on 9-1-2007 and the petitioner filed an objection to the said notice before the Bank on 26-2-2007. The petitioner again wrote a letter on 1-3-2007 to the Bank giving an offer to settle the dispute. As stated in the counter affidavit, the Bank after considering the objection of the petitioner to the notice under section 13 (2) of the Act, rejected the same by his letter dated 5-3-2007 under Annexure-N/2 series. The letter, by which, the objection of the petitioner was rejected, discloses the reasons for which the same was not accepted by the Bank. 19. The letter, by which, the objection of the petitioner was rejected, discloses the reasons for which the same was not accepted by the Bank. 19. Applying the ratio of the decision in the case of Mardia Chemicals Ltd. ( AIR 2004 SC 2371 ) and others (supra), we are of the view that notice under Section 13(2) of the Act, the which has been impugned in the writ petition, cannot be interfered with at this stage. Further, the petitioner has the liberty to prefer an appeal before the Debts Recovery Tribunal, in the event, any measure is taken under sub-section (4) of Section 13 of the Act and, if such an appeal is preferred, it would be open for the Debts Recovery Tribunal to pass any stay/interim order as well as to dispose of the appeal in accordance with law. 20. Any observations made above in respect of questions of fact shall not in any manner affect the adjudication of the civil suit filed by the petitioner before the learned Civil Judge (Senior Division) First Court, Cuttack nor shall influence the Debts Recovery Tribunal, in the event, the petitioner prefers an appeal against issuance of the notice under Section 13(4) of the Act. 21. In the result, the writ petition is dismissed, being devoid of merit, but in the circumstances without any cost. 22. B. P. DAS, J. :- I agree. Petition dismissed.