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2013 DIGILAW 1530 (PNJ)

J. S. International v. Punjab and Sind Bank

2013-11-21

AUGUSTINE GEORGE MASIH, SANJAY KISHAN KAUL

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JUDGMENT Sanjay Kishan Kaul, C.J. 1. The petitioner No. 1 is the borrower, who availed of loan from respondent No. 1-Bank. The petitioner No. 1 failed to adhere to the financial discipline resulting in recovery proceedings by the bank under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as 'the R.D.B.F.I. Act') both against petitioner No. 1 and petitioner No. 2, the owner of the mortgaged property, which was to secure the loan. In the proceedings, a compromise is stated to have been arrived at on 6.12.1996 in terms whereof an amount of Rs.38,73,114.43 along with costs of proceedings and future interest from date of filing of application was agreed to be paid by the petitioners in terms of orders dated 10.12.1996 and a recovery certificate was accordingly issued. It is the say of respondent No. 1 that as per the compromise dated 6.12.1996, which culminated in the order dated 10.12.1996, the petitioners were not to raise any claims regarding the stocks taken into custody by the Receiver and were to further withdraw criminal cases filed against the officers of the bank. However, petitioners failed to do the needful resulting in execution proceedings being filed before the Recovery Officer, Debts Recovery Tribunal, Jaipur in which the mortgaged property was auctioned. Respondents No. 4 and 5, arrayed before us, are the Auction Purchasers while respondent No. 6 is the Court Auctioneer. Respondents No. 2 and 3 are the Debts Recovery Appellate Tribunal and the Debts Recovery Tribunal, which are formal parties. 2. The objections filed by the mortgagor were dismissed by the Recovery officer on 15.4.1998 which order was assailed before the D.R.A.T., Mumbai by the petitioner No. 1 but was not assailed by the mortgagor of the property. It is during the pendency of the appeal that petitioner No. 1 is stated to have deposited some amount and undertook to deposit the balance amount which he failed to do, resulting in dismissal of the appeal on 16.9.1998. 3. The present writ petition under Article 226 of the Constitution of India has been filed seeking to assail the orders dated 16.9.1998 of the D.R.A.T. and 15.4.1998 of the Recovery Officer. 4. It is during the pendency of the petition that the petitioner is stated to have deposited an amount of Rs.3,70,162/- which included interest as well as litigation expenses/costs. The present writ petition under Article 226 of the Constitution of India has been filed seeking to assail the orders dated 16.9.1998 of the D.R.A.T. and 15.4.1998 of the Recovery Officer. 4. It is during the pendency of the petition that the petitioner is stated to have deposited an amount of Rs.3,70,162/- which included interest as well as litigation expenses/costs. On the last date of hearing, on 31.10.2013, learned counsel for the petitioners submitted that the only issue which survived for consideration is the claim of the petitioners for refund of the amount paid by reason of the account of the petitioner being debited for legal fee and expenses paid by the respondent-bank which, according to him, was not even directly relatable to the case in hand. We have, thus, heard learned counsel for the parties on the aforesaid limited issue raised before us. 5. Learned counsel for the petitioners referred to the Division Bench judgment of this Court in Paramiit Sinah v. UCO Bank Ghudani Kalan and another, (2007-4) The Punjab Law Reporter 747 by submitting that when bank has claimed legal charges, publication charges, agency fee and advocate fee under the Securitization and 2002 (hereinafter to be referred to as "the S.A.R.F.A.E.S.I. Act"), the same are not legally payable. This is, of course, so stated in the head-note, but if we peruse the actual words of the judgment, the headnote, in our view, is clearly deceptive. The relevant para-6 reads as under:-- 6. We have heard learned counsel for the parties at length and find that the expenses amounting to Rs.43,300/- which have been claimed by the respondents are not legally payable by the petitioner. The learned counsel for the respondents attempted to justify the incurring of aforesaid expenses by citing Security Interest (Enforcement) Rules, 2002, but could not refer to any specific rule or provision of law or any material on record to substantiate that the expenses incurred by the respondents amounting to Rs.43,300/- were in any way mandatory and necessarily required to be incurred. In the absence of any legal or valid justification, the liability of the same cannot be fastened on the petitioner. The aforesaid shows that what has been observed is that it is not mandatory and necessarily required that the expenses should be debited to the account in the absence of any legal or valid justification. In the absence of any legal or valid justification, the liability of the same cannot be fastened on the petitioner. The aforesaid shows that what has been observed is that it is not mandatory and necessarily required that the expenses should be debited to the account in the absence of any legal or valid justification. The observations have also been made in the context of the inability of the counsels for the respondents to point out any provision, though he referred to the Security Interest (Enforcement) Rules, 2002. The charges which were recoverable were as set out in para-4 and read as under:-- “Charges recoverable 1. Legal Charge Under Section 138 of NI =2,700/- 2. Publication Charge paid =11,000/- 3. Agency fees securitisation Act =15,000/- 4. Advocate’s fee =14,600/- Total 43,300/- 6. Learned counsel for respondent No. 1 rightly points out that the counsel appearing in those proceedings, failed to point out to the Court the provisions of Section 13(7) of the S.A.R.F.A.E.S.I. Act which read as under:-- 13. Enforcement of security interest (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. It is, thus, apparent that "all costs, charges and expenses" which have been properly incurred by secured creditor or any expenses incidental thereto can be recovered from the borrower. This provision was never brought to the attention of the Court in those proceedings. 7. We are, thus, of the view that there is no doubt over the legal entitlement of the financial institution to claim costs, charges and expenses in view of the provisions of sub-section (7) of Section 13 of the S.A.R.F.A.E.S.I. Act. 8. The other judgment referred to by the learned counsel for the petitioners is Mohinder Pal Singh & Anr. 7. We are, thus, of the view that there is no doubt over the legal entitlement of the financial institution to claim costs, charges and expenses in view of the provisions of sub-section (7) of Section 13 of the S.A.R.F.A.E.S.I. Act. 8. The other judgment referred to by the learned counsel for the petitioners is Mohinder Pal Singh & Anr. v. State Bank of India & Anr., 2012 (1) R.C.R. (Civil) 329 : 2012 (2) ISJ (Banking) 77. This judgment has relied on the judgment in Paramiit Singh's case (supra). However, if the facts are examined closely, what has not been permitted to be debited is the amount paid to enforcement agencies as a reward for services, as the reward cannot be passed on to anyone else. Over this proposition, there can be no quibble. 9. Learned counsel for the respondent rightly points out that the issue of litigation expenses was not even raised by the petitioners nor it was an issue before the D.R.A.T. as well as in the writ petition, as the matter in dispute pertained to the auction of the mortgaged property and in the proceedings the relief sought for was to grant some time to deposit balance amount and not to hand over possession of the property to the auction purchaser which amount was not deposited. In the written note, learned counsel for respondent No. 1-bank has, however, pointed out that nature of expenses debited are as under:-- i) Recovery Officer, D.R.T., Jaipur: Execution proceedings in which the mortgage properties were put to auction after publication of sale notices in the Newspapers. The Court auctioneer as appointed to conduct the auction of the properties. ii) D.R.A.T., Mumbai: Petitioner filed Appeal against the order of the Recovery Officer/Respondent No. 3 vide which the objections regarding auction of the properties were ordered to be dismissed. The Appeal was contested at D.R.A.T., Mumbai by the respondent Bank which was ordered to be dismissed. iii) High Court: The Writ Petition in which the orders of the respondent No. 2 and 3 have been challenged vide which auction of mortgaged properties was upheld. The mortgaged properties have been released on deposit of amount. 10. The Appeal was contested at D.R.A.T., Mumbai by the respondent Bank which was ordered to be dismissed. iii) High Court: The Writ Petition in which the orders of the respondent No. 2 and 3 have been challenged vide which auction of mortgaged properties was upheld. The mortgaged properties have been released on deposit of amount. 10. In the context of R.D.B.F.I. Act, learned counsel points out that Section 29 makes the provisions of the Second and Third Schedule of the Income Tax Act, 1961 and the Income Tax (Certificate Proceedings) Rules, 1962, applicable to the defendants in recovery proceedings. Clause-5 of the Second Schedule of the Income Tax Act entitles the Certificate-holder Bank to, thus, recover interest, costs and charges, as is apparent from its wording which reads as under:-- 5. Interest, cost and charges recoverable. -There shall be recoverable, in the proceedings in execution of every certificate - (a) Such interest upon the amount of tax or penalty or other sum to which the certificate relates as is payable in accordance with the sub-section (2) of Sec. 220, and (b) all charges incurred in respect of- (i) the service of notice upon the defaulter to pay the arrears, and of warrants and other processes, and (ii) all other proceedings taken for realizing the arrears. 11. The litigation expenses/costs deposited by the petitioners pertain to court fee, counsels' fee for recovery suit, execution proceedings, appeal proceedings, present writ petition as well as other litigations initiated by the petitioners coupled with the fee paid to the Court Receiver and the auction purchaser and even publication charges for sale of the mortgaged property, etc. and thus, are well within the domain of the authority of the bank to debit them to the account of the petitioner No. 1. In view of the aforesaid, there is no ground for interference under Article 226 of the Constitution of India qua the limited issue arising before us.