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2013 DIGILAW 1365 (KAR)

R. Venkatapathy v. Bank Of India

2013-12-04

A.V.CHANDRASHEKARA, K.L MANJUNATH

body2013
Judgment : 1. The appellant has filed this appeal being aggrieved by the rejection of the plaint filed under Order 7 Rule 11(d) of CPC passed by the City Civil Court, Bangalore on 22.8.2011 in O.S.NO.8639/06. 2. Heard the learned counsel for the parties. 3. The facts leading to this appeal are as under: First defendant is Bank of India. 2nd defendant is the Branch of 1st defendant, Bank of India, which Bank has advanced a loan to M/s U & I System Design Ltd. 3rd defendant has stood as guarantor. Sincc the debtor as well as the 3rd defendant did not repay the amount payable to the Bank, the property of the 3rd defendant was brought for sale invoking the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act for short). It was widely published and notified in the newspaper dt.5.4.2006 stating that property of the 3rd respondent measuring 2,83,000 sq.ft. would be sold by fixing the minimum reserve price Rs. 3 crores. Pursuant to the notification issued in the news papers to auction the property of the 3rd respondent in public auction, the appellant participated in the bid by depositing a sum of Rs. 30 lakhs as E.M.D. being 10% of the reserve price. He was also a successful bidder in the auction in the sale conducted on 10.5.2006 by the defendants-1 and 2. 4. According to the plaintiff, after auction was over, he learnt that the defendants had no salable interest in respect of the property mentioned in the auction notice and that there was also a serious dispute about the title. In the circumstances, he requested the defendants-1 and 2 to clarify the same by giving copies of the original documents of title to verify whether the 3rd defendant had 2,83,000 sq.ft. in actual possession or 2,57,675 Sq.ft. as contended by him. The defendants-1 and 2, instead of complying with the demands made by the plaintiff, called upon the plaintiff to pay 25% of the bid amount and the request of the petitioner to produce the documents of title was not considered at all. It was also the case of the plaintiff that acquisition proceedings had been initiated by KIADB On 19.12.1998 itself. Therefore, the property of the 3rd defendant could not have been sold in public auction. It was also the case of the plaintiff that acquisition proceedings had been initiated by KIADB On 19.12.1998 itself. Therefore, the property of the 3rd defendant could not have been sold in public auction. In the circumstances, the demand was made by the plaintiff to refund E.M.D. amount of Rs.30 lakhs with interest at 12%. Since E.M.D. amount was not refunded to him with interest, a suit came to be filed by the plaintiff seeking recovery of E.M.D. with interests. 5. The defendants-1 and 2 filed an application for rejection of the plaint under Order 7 Rule 11(d) of the CPC on the ground that in view of section 17 of the SARFAESI Act, suit filed by the plaintiff was not maintainable in the civil court and that the plaintiff has to file an appeal u/s 17 of the SARFAESI Act, 6. The Learned Judge, after hearing the learned advocates came to the conclusion that in view of the Judgment of the Hon. Supreme Court in UNITED BANK OF INDIA Vs. SATYVATI AND OTHERS reported in AIR 2010 SC 3413 , the suit filed by the plaintiff was not maintainable. Accordingly, allowed the application filed by defendants-1 and 2 and rejected the plaint under order 7Rule 11(d) CPC. Aggrieved by the rejection of the plaint under Order 7 Rule 11(d), the present appeal is filed. 7. The main contention of the learned counsel for the appellant is that the Trial Court, without properly understanding the provisions of Sections-13, 17 ana 34 of the SARFAESI Act has erroneously rejected the plaint. According to him, Section 17(1) of the Act can be pressed into service by any aggrieved person, if he is challenging an order passed Sub-section (4) of Sec. 13 of the SARFAESI Act and hence prohibition u/s 34 of the SARFAESI Act will not come in the way to file a suit for recovery of the E.M.D. Amount deposited by auction purchaser. There is no implied or explicit exclusion to institute a suit. Therefore, he requests the court to examine the matter in the background of Sections 13, 17 and 34 of the SARFAESI Act and set aside the order passed by the learned Trial Judge. 8. There is no implied or explicit exclusion to institute a suit. Therefore, he requests the court to examine the matter in the background of Sections 13, 17 and 34 of the SARFAESI Act and set aside the order passed by the learned Trial Judge. 8. The learned counsel appearing for the respondents submits that in view of the order passed by the Trial Court relying upon the words "any aggrieved person" found in Section 17(1) of the Act contends that the appellant being an aggrieved person on account of the in action of the respondents-1 and 2 he has to file an appeal u/s 17 of the SARFAESI Act and suit filed by the appellant was barred. In the circumstances, he requests the court to dismiss the appeal. 9. Having heard the counsel for the parties, we have to consider the following points in this appeal: 1) Whether the Trial Court is justified in rejecting the plaint under order 7 Rule 11(d) of CPC referring to the appellant as an aggrieved person u/s 17(1) of the SARFAESI Act, when the appellant is not challenging any order passed under sub-section (4) of section-13 of the SARFAESI Act and 2) Whether there is an express or implied exclusion in SARFAESI Act for the plaintiff to approach the Civil Court on the facts and circumstances of the case? REASONS : 10. As rightly pointed out by the learned counsel for the appellant, it would be appropriate for us to refer to Sections 13, 17 and Section 34 of the SARFAESI Act which are read as hereunder: "13. Enforcement of security interest (1) Notwithstanding anything contained, in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may he enforced, without the intervention of court, or tribunal, by such creditor in accordance with the provisions of this Act. Enforcement of security interest (1) Notwithstanding anything contained, in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may he enforced, without the intervention of court, or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment Thereof and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by rtotice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4). (3) 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 in the event of nonpayment of secured debts by the borrower. (3A) If on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or ob section is not acceptable or tenable, he shall communicate within fifteen days of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 1 7A. (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:— (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole, of the business or part of the business is severable, the secured/creditor shall take over the management of such business of the borrower which is relatable to the security for the debt. (c) appoint any p ere ore (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. 5. Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. (5A) Where. the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorized by the secured creditor in this behalf to bid for the immovable property on behalf of the secured creditor at any subsequent sale. (5B) Where the secured creditor; referred to in sub-section (5A), is declared to be the purchaser of the immovable property at any subsequent sale, the amount of the purchase price shall be adjusted towards the amount of the claim of the secured creditor for which the auction of enforcement of security interest is taken by the secured creditor, under sub-section (4) of section 13. (5c) The provisions of section 9 of the Banking Regulation Act, 1949 (10 of 1949) shall, as far as may be, apply to the immovable property acquired by secured creditor under sub-section (5A). 6. Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4, by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. 7. Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests. (8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time- before the date fixed for sale or transfer, the secured asset shall not be sold or transferred, by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset. (9) In the case of fir Lancing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than sixty per cent in value of the amount outstanding as on a record date and such action shall be binding on all the secured, creditors: Provided that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956): Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529A of that Act: Provided also that the liquidator referred to in the second proviso shall intimate the secured, creditors the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1955 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator: Provided also that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited, by the secured creditor with the liquidator: Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any. Explanation :- For the purposes of this sub-section,— (a) "record date" means the date agreed upon by the secured creditors representing not less than sixty per cent in value of the amount outstanding on such date; (b) "amount outstanding" shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor. Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and/manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower. Without prejudice to the rights conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in clauses (a) to (a) of sub-section (4) in relation to the secured assets under this Act. The rights of a secured creditor under this Act may be exercised by one or more of his officers authonsed in this behalf in such manner as may be prescribed. No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor. 17. Right to appeal(1) Any person (including borrower, aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application along with such fee, as may he prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty-jive days from the date on which such measure had been taken: Provided that different fees may be prescribed for making the application by the bo?~rower and the person other than the borrower. Explanation :- For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection. Explanation :- For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection. or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borroujer) to make an application to the Debts Recovery Tribunal under sub-section (1) of section 1 7. (2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made there under. (3) If the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes 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 this Act and the rules made thereunder, and require restoration of the management of the secured assets to the borrower or restoration of possession of secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in sub-section (4) of section 13 token by the secured creditors as invalid and restore the possession of the secured assets to the borrower or restore the management of the secured assets to the borrower, as the case may be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of section 13. (4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under subsection (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in 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. (5) Any application made under sub-section (1) shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application: Provided that the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so, however, that the total period of pendency of the application with the Debts Recovery Tribunal, shall not exceed four months from the date of making of such application made under sub-section (1). (6) If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in sub-section (5), any part to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery Tribunal for expeditious disposal of the application pending before the Debts Recovery Tribunal and the Appellate Tribunal may, on such application, make an order for expeditious disposal of the pending application by the Debts Recovery Tribunal. (7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks an a Financial institutions Act, 1993 (51 of 1993) and the rules made thereunder. 34, Civil court not to have jurisdiction No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993(51 of 1993). " 11. The admitted facts in this appeal are as hereunder: It is not in dispute that 3rd defendant was a partner of the firm which had borrowed loan from defendants-1 arid 2. For non-payment of dues by the borrower, the property of the 3rd defendant was brought for sale under the SARFAESI Act. Therefore, the appellant is neither guarantor nor a borrower, but he is a third party. For non-payment of dues by the borrower, the property of the 3rd defendant was brought for sale under the SARFAESI Act. Therefore, the appellant is neither guarantor nor a borrower, but he is a third party. He has participated in the bid by depositing Rs.30 lakhs as E.M.D, on the ground that the 3rd defendant has a salable interest in the entire extent of land as mentioned in the notification to an extent of 2,83,000 sq.ft. situated in Bhimanahalli, Bidadi Hobli, Ramanagar taluk. 12. According to the appellant, he agreed to purchase the properties on the ground that the 3rd defendant is the owner of the extent of land mentioned in the particulars of property mentioned in the auction sale. It is his specific case that he entertained a doubt in regard to the actual extent held by the 3rd defendant and the title to the property of the 3rd defendant. According to him, actually there is no property of 2,83,000 Sq.ft. of the 3rd defendant as notified in the auction sale in actual existence. In such circumstances if the appellant has requested the Bank to clarify the doubt, instead of clarifying the doubt, if the defendant has called upon the plaintiff to pay the 25% of the auction sale amount and later if the plaintiff has filed the suit, we have to examine whether the suit filed by the plaintiff is in the nature challenging the order passed under Sub-Section (4) of the Section 13 of the SARFAESI Act, in order to drive him to file an appeal u/s 17 of the SARFAESI Act. We are also required to consider whether there is an express or implied exclusion for the plaintiff to institute a suit in the background of Section 34 of the SARFAESI Act. 13. Admittedly, Section-13 of the SARFAESI Act deals with two process. On a conjoint reading of Sections 13, 17 and 34 we are of the view that Section 13 refers to the guarantor and borrower and any action taken by the guarantor against the borrower. The borrower or any body claiming under borrower can be considered as an aggrieved person and in such an event, an appeal is required to be filed under section 17 of the SARFAESI Act. 14. As a matter of fact, the Trial Court while referring to the Judgment of the Hon. Court in UNITED BANK OF INDIA VS. The borrower or any body claiming under borrower can be considered as an aggrieved person and in such an event, an appeal is required to be filed under section 17 of the SARFAESI Act. 14. As a matter of fact, the Trial Court while referring to the Judgment of the Hon. Court in UNITED BANK OF INDIA VS. SATYAWATI & OTHERS {MR 2010 SC 3413) has dismissed the petition without understanding the Judgment of the Supreme Court, The Hon. Supreme Court while referring to the word "an3^ person" under section 17 has clearly held that any person includes guarantor or any person affected by action taken under section 13 (4) of the Act. On reading of the Judgment of the Hon. Apex Court, we are of the view that the said Judgment cannot be construed to have application to the facts and circumstances of this case because the appellant herein cannot be considered as a guarantor or a person affected by action taken under sub-section (4) of section 13. Therefore, the said Judgment has no application to the facts and circumstances of this case and is clearly distinguishable on facts: 15. The learned counsel for the respondent bank has vehemently argued that the decision in Satyavati's case mentioned above is a binding precedent under article 141 of the constitution and hence it is squarely applicable to this case. What exactly is the precedent value has been succinctly explained by a bench consisting of 3 Hon'ble Judges of the Supreme Court in State Financial Corporation, Haryana Vs Jagadamba Oil Mills and is based on Lord Denning's observation. 16. The Hon. Supreme Court in STATE FINANCIAL CORPORATION AND ANOTHER VS. M/S JAGADAMBA OIL MILLS AND ANOTHER ( AIR 2002 SC 834 ) had an occasion to consider the aspect of precedent of the previous Judgment, which reads as under: (E) Constitution of India, Art. 141 - Precedents - Reliance on blindly - Not proper - Factual situations between decided case and case at hand are to be discussed. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are not to be read as Euclid's theorems nor as provisions of the statute These observations must be read in the context in which they appear. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are not to be read as Euclid's theorems nor as provisions of the statute These observations must be read in the context in which they appear. Judgments of Courts are not to be construed as statutes. To interpret words, phrase and provisions of a statute, it may became necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments, They interpret words of statutes, their words are not to be interpreted as statutes. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper. 17. In view of the above ruling of the Hon. Supreme Court, we are of the view that the Judgment relied upon by the other side and the Trial Court has no application to the facts and circumstances of this case and hence distinguishable on facts. Accordingly, we answer Point-1 against the respondents and in favour of the appellant. 18. In so far as the second point is concerned, on reading of Section-34 of SARFAESI Act. we find that there is no express or implied exclusion to institute a suit by an auction purchaser to recover his E.M.D. we are of the view that the Trial Court has committed an error in rejecting the plaint under Order 7 Rule 11 relying upon Sec. 34 of the SARFAESI Act. Even in cases where there is a specific provision excluding the jurisdiction of the Civil Court, court can go deep into it to see whether avenue is provided for all exigencies. 19. The Hon. Supreme Court in AIR 1969 SC 439 in the case of MUSAMIA IMAM HAIDER BAX RAZVI VS. Even in cases where there is a specific provision excluding the jurisdiction of the Civil Court, court can go deep into it to see whether avenue is provided for all exigencies. 19. The Hon. Supreme Court in AIR 1969 SC 439 in the case of MUSAMIA IMAM HAIDER BAX RAZVI VS. RABARI GOVINDBHAI RATNABAI AND OTHERS, while discussing about the exclusion of Civil Court under section 9 of CPC has held that exclusion of jurisdiction of Civil Court should not be readily inferred, has held as hereunder: Jurisdiction of Civil Court - Exclusion of - Net to be readily inferred - Statute ousting jurisdiction of Civil Court must do so in express terms or by use of such terms as would necessarily lead to such inference. 20. It is settled law that the exclusion is not to be readily inferred that such exclusion must either be strictly expressed or clearly implied. Since there is no express or implied exclusion for the plaintiff to institute a suit to recover the E.M.D. amount deposited by him, we are of the view that the findings of the Trial Court rejecting the plaint under Order 7 Rule 11(d) of CPC is illegal and liable to be set aside. 21. In the result, the appeal is allowed with costs. 22. The order passed on I.A. filed under Order 7 Rule 11(d) of CPC by the City Civil Judge in O.S. NO. 8639/2006 dt. 22.8.2011 is hereby set aside. The matter is remanded to the Trial Court to proceed with the case on merits and in accordance with law as expeditiously as possible. Parties are directed to appear before the Trial Court on 27.1.2014 without any further notice and co-operate with the court for expeditious disposal. In view of the order of remand, the appellant is entitled for refund of court fee.