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2012 DIGILAW 548 (CAL)

Nik-Nish Retail Pvt. Ltd v. Union Bank

2012-06-25

DIPANKAR DATTA

body2012
Judgment : 1. Issues of fact and law in these three writ petitions and connected applications being common, they were heard together and shall stand disposed of by this common judgment and order. 2. The first petitioner in W.P. 4 of 2010 (hereafter the borrower) obtained credit facilities sanctioned by the respondent no.1/bank (hereafter the bank). Properties of the respondent nos. 3 (M/s. Bansilal Credit Pvt. Ltd.) and 4 (M/s. Akhil Orchards Pvt. Ltd.), who are the petitioners in W.P. 6 of 2010 and W.P. 3 of 2010 respectively were mortgaged by deposit of title deeds in favour of the bank. The borrower having failed and neglected to repay its debt to the bank, its cash credit account was classified as ‘non-performing asset’ and a demand notice dated September 9, 2009 in terms of Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security and Interest Act, 2002 (hereafter the Act) was issued by the authorized officer of the bank. The borrower was called upon to pay a total sum of Rs. 10,28,74,036.24 within 60 days, failing which the bank would have no other option but to enforce the securities created in its favour as indicated therein. 3. The borrower as well as Bansilal and Akhil neither cleared their liability nor made any representation countering the demand notice; instead, the borrower approached the bank with a request to operate a current account maintained by it by retaining 20% of the deposits and permitting withdrawal of the balance as per its requirement. The bank by its letter dated September 16, 2009 permitted operation of the current account, as requested by the borrower, and informed it that the retained amount would be transferred to the cash credit account. In pursuance of such arrangement, Rs.45,000/-, Rs. 20,000/-and Rs. 10,000/-were transferred to the cash credit account. No effort worth the name was, however, made by the borrower to clear its liability in full in response to the demand notice and a staggering figure in excess of Rs. 9.5 crore remained unpaid. The bank having waited for 60 days to expire from date of issuance of the demand notice informed the borrower as well as Bansilal and Akhil of its intention to enforce the securities by taking possession of the same for recovery of the secured debt. 4. 9.5 crore remained unpaid. The bank having waited for 60 days to expire from date of issuance of the demand notice informed the borrower as well as Bansilal and Akhil of its intention to enforce the securities by taking possession of the same for recovery of the secured debt. 4. It was at this stage that these three writ petitions were presented before this Court, inter alia, by the borrower, Bansilal and Akhil on January 4, 2010. Upon hearing learned advocates for the parties, three separate but identical orders dated January 6, 2010 were passed. The order passed on the writ petition filed by the borrower reads as follows: “Having heard learned Advocates appearing for the parties and considering the facts and circumstances of the case, I am of the opinion that issues raised in this writ petition should be decided finally on affidavits. Therefore, liberty is granted to the respondents to file affidavit-in-opposition in relation to this writ petition within two weeks from date; reply thereto, if any, may be filed within a week thereafter. Let this matter be listed as ‘For Hearing’ three weeks hence. Let there also be an interim order restraining the respondents from taking any coercive step against the petitioners or in respect of the assets of the said petitioners until further order, although the said respondents will be at liberty to take symbolic possession of the mortgaged property. All parties are to act on a xerox signed copy of this order on the usual undertakings.” 5. The bank and the respective writ petitioners exchanged their affidavits. The writ petitions were listed before this Court on August 3, 2010. Since no one had appeared despite second call, the writ petitions were dismissed for default. The same have since been restored together with the interim orders by an order dated August 18, 2010. 6. On May 14, 2012, the bank filed separate applications for vacating the interim orders passed on January 6, 2010. While hearing these applications, I proposed to the parties that the writ petitions may be heard finally since the affidavits had been exchanged. Parties having agreed to such proposal, the writ petitions were taken up for consideration. 7. Three points were urged by Mr. Chakraborty, learned advocate while assailing the impugned notices dated October 9, 2009 and December 9, 2009. 8. Parties having agreed to such proposal, the writ petitions were taken up for consideration. 7. Three points were urged by Mr. Chakraborty, learned advocate while assailing the impugned notices dated October 9, 2009 and December 9, 2009. 8. Firstly, he submitted that the notices suffer from gross jurisdictional error in that the cash credit account in question could not have been classified as ‘nonperforming asset’ in terms of the guidelines of the Reserve Bank of India. He referred to clause 4.2.4 of the said guidelines as well as a Bench decision of the Andhra Pradesh High Court reported in AIR 2010 A.P. 35 [M/s. Sravan Dall Mill (P) Ltd. v. Central Bank of India] in support of his contention that the borrower was entitled to have its cash credit account declassified from a ‘non-performing asset’ to a standard account, in view of the deposits made after issuance of the demand notice under Section 13(2) of the Act. Secondly, he submitted that the cash credit account ceased to be a ‘non-performing asset’ once the bank allowed the current account to be operated resulting in waiver of the said demand notice. Thirdly and finally, it was contended that the officer of the bank who had issued the notices under Section 13(2) and 13(4) of the Act was not the authorized officer competent to take action against the petitioners in terms of the Act in view of the definition of authorized officer in Rule 2(a) of the Security Interest Rules. 9. Answering the contentions raised on behalf of the petitioners, Mr. Saha, learned advocate for the bank urged that the writ petitions are not maintainable either in law or on facts and deserved to be summarily dismissed. According to him, no jurisdictional error had been committed by the authorized officer of the bank in proceeding against all the petitioners in terms of the provisions contained in the Act. The guidelines of the Reserve Bank have not been violated and the borrower could not have legitimately expected to have the cash credit account declassified from a ‘non-performing asset’ to a ‘standard account’ only because Rs.80,000/-and odd had been retained by the bank in terms of the request of the borrower, leaving an outstanding of Rs. 9.5 crore. The guidelines of the Reserve Bank have not been violated and the borrower could not have legitimately expected to have the cash credit account declassified from a ‘non-performing asset’ to a ‘standard account’ only because Rs.80,000/-and odd had been retained by the bank in terms of the request of the borrower, leaving an outstanding of Rs. 9.5 crore. It was further contended by him that until and unless the entire amount specified in the demand notice is paid and the liability cleared, there is no question of waiver of such demand notice and the contention raised in this regard by his adversary is without merit. Lastly, he referred to the supplementary affidavit filed on behalf of the bank, in terms of leave granted by this Court by order dated June 15, 2012, to substantiate his contention that the officer who issued the notices impugned in the writ petitions is of the rank of Chief Manager and, therefore, was competent to initiate proceedings under the Act. 10. In support of his submission that the writ petitions are not maintainable, Mr. Saha relied on the decisions of the Supreme Court reported in (2010) 8 SCC 110 (United Bank of India v. Satyawati Tondon & ors.) and (2011) 2 SCC 782 (Kanaiyalal Lalchand Sachdev & ors. v. State of Maharashtra & ors.). He, accordingly, prayed for dismissal of the writ petitions. 11. Having heard learned advocates for the parties, I find substance in the submission of Mr. Saha and have no option but to hold that the writ petitions are not maintainable in law. 12. The respective petitioners never disputed that a sum in excess of Rs. 10 crores was due and payable by the borrower on the date the demand notice under Section 13(2) of the Act was received by them. The account of the borrower in respect of such debt was classified as ‘non performing asset’, leading to issuance of the demand notice. Reference has not been made to any statutory provision or guideline of the Reserve Bank to demonstrate that issuance of the demand notice was illegal because the jurisdictional fact for issuing it did not exist. I am thus unable to accept Mr. Chakraborty’s submission that the jurisdictional fact for issuing the notice under Section 13(2) of the Act was not satisfied. 13. I am thus unable to accept Mr. Chakraborty’s submission that the jurisdictional fact for issuing the notice under Section 13(2) of the Act was not satisfied. 13. Now, the request of the borrower to operate the current account was accepted by the bank on terms that 20% of any amount credited in the current account would have to be retained and the same would be transferred to the cash credit account. This arrangement resulted in a paltry sum of Rs. 80,000/-being transferred to the cash credit account, leaving a sum in excess of Rs. 9.5 crore being due and payable to the bank. Question is whether the borrower by virtue of such retention and transfer was entitled to up gradation of the status of the cash credit account to ‘non NPA category’ or not and further as to whether it constituted waiver of the bank to proceed with the demand notice or not. 14. I have no hesitation to hold that the borrower was not entitled to have the status of the account upgraded, and that there was no waiver on the part of the bank to proceed against the petitioners. The scheme of the Act envisages grant of 60 days time to the defaulter for clearance of the liability or to raise objection. Even if the defaulting party falls short of paying Rs. 1/-of the amount specified in the demand notice within the permitted period, its account would still be a ‘nonperforming asset’ and continue to be treated as such and the secured creditor is, in the circumstances, entitled to initiate further action in terms of provisions of the Act including taking measures to take possession of the secured assets after the period of 60 days has expired if no objection is received in the meantime or the objection to the demand notice has been overruled. Question of waiver does not and cannot arise simply because certain payments had been credited in the cash credit account. The period of 60 days is the time limited for clearing the liability and if the liability does not stand cleared, notwithstanding part payment the secured creditor is well within its right to exercise power conferred by Section 13(4) of the Act. The contention, accordingly, stands overruled. 15. On perusal of the guidelines of the Reserve Bank, it does not appear that the same comes to the rescue of the borrower. The contention, accordingly, stands overruled. 15. On perusal of the guidelines of the Reserve Bank, it does not appear that the same comes to the rescue of the borrower. Clause 4.2.4, to which reference has been made by Mr. Chakraborty, reads thus: “4.2.4 Up gradation of loan accounts classified as NPAs. If arrears of interest and principal are paid by the borrower in the case of loan accounts classified as NPAs, the account should no longer be treated as non-performing and may be classified as ‘standard’ accounts. With regard to up gradation of a restructured/rescheduled account which is classified as NPA contents of paragraphs 4.2.14 and 4.2.15 will be applicable.” 16. Up gradation of a loan account that is classified as ‘non-performing asset’ as ‘standard’ would arise only if the arrears of interest and principal are paid by a borrower. The guidelines do not contemplate that part payment of arrears of interest and principal would lead to up gradation of status. The decision in M/s. Sravanlal (supra) does not lay down any law that would persuade me to hold in favour of the petitioners. Submission advanced by Mr. Chakraborty placing reliance thereon appears to be wholly without merit. 17. Adverting to the supplementary affidavit filed on behalf of the bank, I am convinced that the Chief Manager had initiated proceedings and he was competent to do so in view of the office held by him. Initiation of the proceedings does not, therefore, appear to be vulnerable on any count. 18. The writ petitions stand dismissed. Interim orders dated January 6, 2010 are vacated. In view of the above, the applications stand disposed of. There shall be no order as to costs. 19. Needless to observe, dismissal of the writ petitions shall not preclude the petitioners to invoke the remedy provided by Section 17(1) of the Act if occasion there for arises in future.