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2012 DIGILAW 1146 (ALL)

Shalini Asha Chopra v. State Bank of India

2012-05-11

R.K.GUPTA

body2012
JUDGMENT : R.K. GUPTA, (CHAIRPERSON) 1. They are heard. This is an Appeal preferred under Section 20 of the RDDBFI Act, 1993 challenging the order passed by the DRT on 2nd April, 2012. By this order, the objection, which was raised by the appellants against the application for substitution of Kotak Mahindra Bank Ltd. has been rejected. The relevant facts for the adjudication of the present Appeal are that the State Bank of India initially filed a Civil Suit for recovery of its dues, subsequently, the said Suit was transferred to the DRT and the same was allowed by an order dated 12th May, 2006 and, accordingly, the Recovery Certificate was issued for a sum of Rs. 1,41,74,528.37 together with cost and pendente lite and future interest @ 16.5% per annum with quarterly rests from the date of filing of the Suit i.e. 30th April, 1993 till full realization. The liability was joint and several. The appellant Nos. 1 and 2 are the guarantors and the appellant No. 3 is the principal borrower. 2. This is to be seen that earlier Kotak Mahindra Bank Ltd. was impleaded by an order dated 13th March, 2007 and the said order was challenged before this Tribunal in an Appeal on the ground that the order of substitution has been passed without giving an opportunity of hearing to the appellants, thereafter, the case was remanded back to the Tribunal for passing afresh order after hearing the parties. Now the Tribunal has passed afresh order. 3. The Deed of Assignment was entered into between the State Bank of India and Kotak Mahindra Bank Ltd. The same was entered into on 29th March, 2006 which is placed on record. After when the said Deed of Assignment was entered into, an application on behalf of the present appellants was moved that the debt has been assigned by the State Bank of India to Kotak Mahindra Bank Ltd., therefore, the State Bank of India has no right to prosecute the Civil Suit/Original Application, On the date, when the said application was decided by the Tribunal by its order dated 10th May, 2006 on that date Kotak Mahindra Bank Ltd. was neither a party nor it was noticed. State Bank of India insisted that they have every right to prosecute the appellants for recovery of their debt. State Bank of India insisted that they have every right to prosecute the appellants for recovery of their debt. Thereafter, the Recovery Certificate was passed against the appellants on 12th May, 2006. After passing of the Recovery Certificate, the same was put to execution by the Recovery Officer of the Tribunal. Before the Recovery Officer, the State Bank of India insisted to recover the amount, but an application was moved by the Kotak Mahindra Bank Ltd. for substitution in place of the State Bank of India, as certificate holder and Kotak Mahindra Bank Ltd. claimed that under the Deed of Assignment they have right to execute the Recovery Certificate. 4. It was objected by the appellants on the ground that earlier when the application was moved by them that the State Bank of India has no right to execute the Recovery Certificate and only Kotak Mahindra Bank Ltd. has right to execute the decree/Recovery Certificate, then it was rejected at the first point of time and thereafter, Kotak Mahindra Bank Ltd. has no right to apply for substitution under the Deed of Assignment. 5. The objections which were submitted by the appellants before the Recovery Officer were decided by the learned Presiding Officer of the DRT vide its order dated 12th April, 2012 has accepted the application for substitution so filed by Kotak Mahindra Bank Ltd. against which the present appeal has been preferred. 6. Learned Counsel for the appellants relied upon the judgment passed by the Hon'ble Apex Court in 281870, and on the basis of the said judgment, it is contended that if the contract for assignment has been entered into prior to passing of the decree, then the decree as such cannot be executed by the assignee in place of the assignor. It was also submitted that by virtue of Section 146 of the CPC, where any proceeding may be taken or application made by or against any person, then the proceeding may be taken or the application may be made by or against any person claiming under him. It was also submitted that by virtue of Section 146 of the CPC, where any proceeding may be taken or application made by or against any person, then the proceeding may be taken or the application may be made by or against any person claiming under him. On this basis, it is submitted that when the DRT has already passed the order on 10th May, 2007 rejecting the application of the present appellants, which was opposed by the State Bank of India, then, by virtue of Section 146 of the CPC, it cannot be said that Kotak Mahindra Bank Ltd. was prosecuting the said Civil Suit/Original Application on behalf of the State Bank of India. 7. This is to be seen that at the first instance the said judgment will have no application. The paragraph No. 7 of the said judgment itself indicates the facts, which are relevant to distinguish the said judgment of the Apex Court to apply in the facts and circumstances of the present case. There was an agreement between the assignor and the assignee to recover the debt, but in the case before the Apex Court there was no agreement between the assignor and the assignee to recover the amount under the decree, therefore, the Hon'ble Supreme Court by noting the facts in paragraph No. 7 was of the opinion that in absence of any contract to execute the decree by the assignee, the assignee will not have right to execute the said decree, as there was no contract between the assignor and the assignee to execute the decree. But the facts of the present case are to be seen that under the Deed of Assignment which has been placed on record at Page 75 of the paper book. The Clause 1.2.2 of the said Assignment is relevant, which reads as under: all legal proceedings by the Assignor relating to the Debts and pending on the date hereof, shall stand assigned to the Assignee and shall continue as per the directions of the Assignee at the cost and risks of assignee and from the date hereof shall be enforceable by the Assignee. On such transfer, the Assignee shall stand subrogated in place of the Assignor in respect of the Debts. 8. On such transfer, the Assignee shall stand subrogated in place of the Assignor in respect of the Debts. 8. There is no dispute that on the date when the Deed of Assignment was entered into, the legal proceedings initiated by the assignor were pending and if the said clause is to be made operative, then all legal proceedings can be taken up by the assignee. Thus, there is a contract which was entered into even before the date of decree. Therefore, in the facts and circumstances of the case, neither the Order 21, Rule 16 of the CPC would apply nor Section 146 of the CPC would apply. 9. The Hon'ble Apex Court in 266651, has already upheld the transaction in relation to the assignment of the debt being a banking business and the Deed of Assignment has to be a valid one and it also permits the assignor to assign the debt for its recovery to another company. 10. The judgment passed by the Hon'ble High Court of Judicature at Allahabad, Lucknow Bench, Lucknow in L.C.L. Jewellery Ltd. v. Debts Recovery Tribunal, 2011 (89) ALR 22, is relevant and the Hon'ble High Court in Paras 51,52 and 53 of the said judgment has held: 51. The assertion of the petitioner regarding assignment is wholly misconceived in view of the final judgment rendered by the Apex Court in ICICI Bank v. Official Liquidator (supra), the petitioner being a borrower has no jurisdiction, right or authority to challenge the transfer of account/asset by the Bank of Baroda to I.F.C.I. Ltd. While deciding SLP (Civil) No. 2240 of 2009, ICICI Bank Ltd. v. Official Liquidator of APS Star Industries Ltd., along with other connected SLPs, the Apex Court, in Paras 48, 49 and 50, has held that the borrower, who had committed default, on account whereof his account has become NPA, is not entitled to participate in the transfer of Account Receivable from one Bank to the other. Thus, the petitioner as borrower has no jurisdiction, right or authority to challenge the transfer of account/asset by the Bank of Baroda to I.F.C.I. Ltd. 52. Thus, the petitioner as borrower has no jurisdiction, right or authority to challenge the transfer of account/asset by the Bank of Baroda to I.F.C.I. Ltd. 52. Counsel for the petitioner while question, the assignment has also argued that the Bank of Baroda cannot prosecute the recovery proceedings anymore after the assignment in favour of I.F.C.I. Ltd. On the other hand, respondent-Bank has submitted that assignment is an internal matter between the Bank and I.F.C.I. and the borrower has no jurisdiction, right or authority to question it. 53. It is surprising that on one hand, the petitioner is disputing the rights of Bank of Baroda to recover its dues and on the other hand, questioning the assignment, petitioner himself is in dwindle. An Account Receivable becomes an N.P.A. because of the default committed by the borrower, who fails to repay. In other words, when the borrower violates his obligation to repay the debts. It may be noted that in A.P.S. Star Industries Ltd. (supra), the Apex Court while examining the provisions of B.R. Act came to the conclusion that it cannot be said that assignment or debts/NPAs is impressible under the 1949 Act. The assignment of a debt is not considered to be contrary to public policy solely on the ground that the assignee has purchased the debt for a considerably discounted price or because that price is only payable after a period of credit. In my opinion the Bank of Baroda being a certificate holder Bank has a right to proceed with its execution. The assignee Bank by reason of assignment does, not loses his right to continue the proceedings. To put it differently, in the event, even if the assignee does no choose to become party, the assignee Bank is bound by the decision against the assignor. 11. On the basis of the judgment passed by the Hon'ble Apex Court in ICICI Bank Limited (supra), by way of Deed of Assignment, the assignee stepped into the shoes of the assignor. The permissibility of the same is also permitted under the SARFAESI Act, 2002. The definition of word "debt" has been amended by inserting the Act I of 2000 w.e.f. 17th January, 2000, wherein while defining the word "debt" the decreetal debt has also been included to be a "debt". 12. The permissibility of the same is also permitted under the SARFAESI Act, 2002. The definition of word "debt" has been amended by inserting the Act I of 2000 w.e.f. 17th January, 2000, wherein while defining the word "debt" the decreetal debt has also been included to be a "debt". 12. By virtue of Section 5 of the SARFAESI Act, 2002, acquisition of rights or interest in financial assets is permissible and by virtue of Section 5, notwithstanding anything contained in any agreement or any other law for the time being in force, any Securitization Company or Reconstruction Company may acquire financial assets of any Bank or Financial Institution in the manner as provided under the "Act". The word "financial asset" is also defined under Sub-section (1) of Section 2 of the SARFAESI Act, 2002, which means, debt or receivables and includes a claim to any debt or receivables or part thereof, whether secured or unsecured or any debt or receivables secured by, mortgage of, or charge on, immovable property or a mortgage, charge, hypothecation or pledge of movable property or any right or interest in the security, whether full or part underlying such debt or receivables, or any beneficial interest in property, whether movable or immovable. Thus the Deed of Assignment gets recognized by virtue of Section 4 of the SARFAESI Act, 2002. Therefore, the general preposition of law either under Order 41, Rule 6 or under Section 146 of the CPC even otherwise will have no application. 13. Once by virtue of Clause 1.2.2 of the Deed of Assignment, all legal proceedings by the assignor relating to the debts and pending on the date hereof stood transferred to the assignee, were to be continued by the assignee, therefore, in terms to the said clause, the assignee will have every right to pursue the legal proceedings even execution of the decree. The said clause does not state that only legal proceedings and pending adjudication of debt have been assigned to the assignee, but the said clause is very comprehensive to state that all the legal proceedings by the assignor relating to the debt and pending on the date shall stand assigned to the assignee, therefore, execution of the Recovery Certificate being a legal proceeding stands assigned to the assignee. Once the assignee steps over the shoes of the assignor, then this is only possible if there is some liability to be determined or determined by way of legal proceedings. Until the liability of the assignor is to be upheld, the assignee will have no right of any nature because the assignee will get the same right of the assignor. The assignor in the present case being the State Bank of India even gets a decree or chooses to file Civil Suit for determination of the issue and to get a decree, then under both the eventualities, the assignor will have right to assign the said legal proceedings to the assignee. Under these circumstances, even assuming that at the earlier stage, the Tribunal did not accept the request for substitution of the Kotak Mahindra Bank Ltd. as a party, but at a subsequent stage, when the application is moved by Kotak Mahindra Bank Ltd., there can always be the substitution. The earlier order dated 10th May, 2006 passed by the DRT rejecting the application of the appellants to substitute the Kotak Mahindra Bank Ltd. on the basis of the Deed of Assignment which was opposed by the State Bank of India, at that stage Kotak Mahindra Bank Ltd. was not heard and the said order was passed in their absence, therefore, the earlier judgment so passed on 12th May, 2006 will not have the binding effect on Kotak Mahindra Bank Ltd. but after when Kotak Mahindra Bank Ltd. moves the application and prays for substitution in the proceedings being an assignee, then the said application has to be decided independently, rather than to reject the same on the ground that earlier order dated 10th May, 2006 was passed and the State Bank of India opposed the said application. At this stage, all such is not binding on Kotak Mahindra Bank Ltd. because they have no opportunity to oppose but on the basis of the Deed of Assignment, Kotak Mahindra Bank Ltd. will have every right to apply for substitution and, accordingly, the order passed by the Tribunal permitting the Kotak Mahindra Bank Ltd. for its substituting is proper and does not deserve to be interfered with. Accordingly, the Appeal is without any merit, hence the same is dismissed.