Research › Search › Judgment

Calcutta High Court · body

2016 DIGILAW 105 (CAL)

State Bank of India v. Vivek Kumar Kejriwal

2016-02-01

JOYMALYA BAGCHI, MANJULA CHELLUR

body2016
JUDGMENT : Manjula Chellur, J. The dispute between the creditor and borrower ultimately led to the present appeal in respect of secured asset secured for the advancement of the loan by the appellant Bank to the respondent No. 5 company. The property consist of ground floor plus three floors and the roof top in Premises at No. 10A, Shakespeare Sarani, Kolkata-700071 which would be referred to as secured asset hereinafter. 2. The writ petition came to be filed by a third party claiming to be a tenant challenging the order passed by Chief Metropolitan Magistrate dated 03.07.2014 in respect of the above secured property contending that he as a tenant being in possession of the property cannot be evicted except under due process of law. The learned Judge in a detailed order allowed the writ petition by setting aside the order of the Chief Metropolitan Magistrate Calcutta opining that secured creditor is at liberty to approach the relevant authority in terms of Section 14 of the Security and Reconstruction of Financial assets and Enforcement of Security Interest Act 2002 (SARFESI) (hereinafter referred to as the Act) in respect of the secured property. 3. However, so far as validity of the tenancy or the right of the writ petitioner nothing was said on merits. 4. It is not in dispute that when the respondent No. 5 company failed to repay the loan, the same was declared as Non-Performing Asset (NPA). Proceedings were initiated by issuance of notice dated 29.10.2013 to the 5th respondent under Section 13(2) of the Act. Apparently symbolic possession of the secured asset was taken on 30.05.2014. Newspaper publications appeared at the behest of the Bank on 03.06.2014 followed by corrigendum on 06.06.2015. 5. Subsequently, appellant Bank took out an application under Section 14 of the Act before the learned Chief Metropolitan Magistrate Calcutta seeking permission of the Magistrate to take physical possession of the secured asset. Learned Magistrate by order dated 03.07.2014 allowed the Bank to take physical possession of the secured asset with police help. 6. Respondent No. 1/writ petitioner at that point of time claiming to be a tenant in respect of the ground floor and terrace of the above secured asset at a monthly rent of Rs. 8,000/- since 12.08.2006 filed the writ petition in question. 7. 6. Respondent No. 1/writ petitioner at that point of time claiming to be a tenant in respect of the ground floor and terrace of the above secured asset at a monthly rent of Rs. 8,000/- since 12.08.2006 filed the writ petition in question. 7. Admittedly, reliance was placed on an unregistered tenancy agreement dated 12.08.2006 and certain rent receipts issued by respondent Company till June 2014. He further tried to substantiate his claim by placing trade licenses issued by Calcutta Municipal Corporation etc. Apparently appellant Bank had also issued notice under Section 13(4)(d) of the Act. However, writ petitioner had not paid rents to the Bank in response to the notice. 8. During pendency of the said application before the Chief Metropolitan Magistrate when the sale notice came to be published, the same was assailed in the proceedings before the Debt Recovery Tribunal in S.A. 15/2014. 9. No bidders came forward in response to the publication of said notice, therefore, the Tribunal by order dated 03.09.2014 refused to grant any interim relief to the present writ petitioner in the above S.A. 15/2014. Further Tribunal reserved liberty to the writ petitioner to take appropriate action before appropriate forum in view of the law declared by the Apex Court in Harshad Govardhan Sondagar v. International Assets Reconstruction Company Limited reported in (2014) 6 SCC 1 . 10. Learned Single Judge opined while allowing the writ petition that affidavit filed by the Bank was not in terms of the requirements indicated in Sondagar (supra) and that the order of learned Magistrate was also not in consonance with Section 14(1-A) of the Act of 2002. 11. Ms. Mukherjee, learned senior Counsel while arguing for appellant Bank submitted that when writ petitioner/respondent was not a registered lessee he was not entitled to resist taking possession of the secured asset in terms of Section 14 of the Act in the light of law declared in Sondagar (supra). According to learned Senior Counsel, no tenancy was created in favour of respondent/writ petitioner in respect of secured asset, as claimed, prior to the issuance of notice under Section 13(2) of the Act of 2002. According to learned Senior Counsel, no tenancy was created in favour of respondent/writ petitioner in respect of secured asset, as claimed, prior to the issuance of notice under Section 13(2) of the Act of 2002. He further submitted that the trade licenses relied upon by the writ petitioner related altogether to a different premises and other documents in support of tenancy are created in collusion with 5th respondent company to defeat the steps taken by the Bank under the Act. He supports his contentions by submitting that no rents were paid in response to notice under Section 13(1)(d) of the Act. Further, respondent/writ petitioner was the Chairman of the Board of Directors of the company which stood as guarantor in respect of the loan and was fully aware of the creation of security interest in the property in question. The present litigation according to learned Senior Counsel is a desperate attempt to scuttle the steps taken under Section 14 of the Act against the debtor, therefore such claim ought not be have been entertained by the first Court. 12. Learned Senior Counsel Mr. Saha arguing for respondent/writ petitioner submitted that tenancy agreement was executed in 2006 therefore, respondent/petitioner is a bona fide tenant in respect of the secured asset which came into existence prior to the creation of security interest in the property. The appellant Bank having recognized such right had issued notice upon the writ petitioner calling upon him to pay the rents to them, hence, Bank was under an obligation to disclose such tenancy in its affidavit accompanying application under Section 14 of the Act of 2002. Writ petitioner had approached DRT to protect his tenancy right but no order was passed in his favour in the light of law declared in Sondagar (supra). It was further submitted that Act does not take away the tenancy right in a secured asset if the same was created prior to issuance of notice under Section 13(2) of the Act, therefore, no interference is called for in the appeal. He also contended that leave may be granted to his client to pursue his remedy before the Tribunal in terms of law declared in United Bank of India v. Satyawati Tandon ( (2010) 8 SCC 110 ). 13. The recovery of debts due to Banks and Financial Institutions under Act, 1993 was made hereinafter referred to as (RDDB Act). He also contended that leave may be granted to his client to pursue his remedy before the Tribunal in terms of law declared in United Bank of India v. Satyawati Tandon ( (2010) 8 SCC 110 ). 13. The recovery of debts due to Banks and Financial Institutions under Act, 1993 was made hereinafter referred to as (RDDB Act). Under SARFAESI Act special and summary procedure for Banks and other financial institutions is contemplated to recover its dues in respect of loans advanced by the Banks particularly those which have been declared as NPA. 14. Apparently, various expert committees like Narasimhan and Andhyarujina committees pointed out and lamented the adverse impact of burgeoning NPAs in Banks, other institution and recommended speedy and uninterrupted mechanism for recovery of dues arising from NPAs so as to ensure liquidity and credibility of financial flow in capital market which is a para-mount public interest especially in developing economy. This exercise of the committees prompted the enactment of the Act laying down speedy and effective mechanism for recovery of loans declared as NPAs by authorising Banks and financial institutions to take possession of secured assets so as to dispose of the same without submitting themselves to the intricate maze of adjudicatory process of law paraphernalia at the first instance. However, individual rights of borrowers including others interested in the secured asset, were not absolutely negated but made subservient to the public interest of speedy recovery and relegated for adjudication under Section 17 of the Act of 2002 only after measures were taken by the Bank under Section 13(4) of the Act, namely taking possession, management etc. of the secured asset and not prior to such measures e.g rejection of representation of a borrower under Section 13(3-A) of the Act. The legislative intention has to be borne in mind by interpreting the provisions of the Act. 15. Section 13(1) of the Act provides that notwithstanding anything contained in Section 69 or 69A of the Transfer of Property Act secured interest in favour of a secured creditor may be enforced without the interference of a Court or Tribunal under the provisions of the Act. 15. Section 13(1) of the Act provides that notwithstanding anything contained in Section 69 or 69A of the Transfer of Property Act secured interest in favour of a secured creditor may be enforced without the interference of a Court or Tribunal under the provisions of the Act. Sub-Section 2 of the Act provides for a notice to the borrower to liquidate his dues in respect of amounts declared as NPA within a time frame of sixty days failing which the secured creditor shall be entitled to take measures envisaged under sub-Section 4 with regard to the asset. Sub-Section 13 prohibits the transfer of secured asset by way of sale, lease or otherwise after receipt of the aforesaid notice. Sub-Section (3-A) gives a right of representation to the borrower against such notice and duty is cast on the creditor to deal with such representation and communicate within fifteen days of receipt of such representation the decision thereon along with reasons to the borrower. Such decision is, however, not justiciable. Sub-Section 4 lays down the steps the secured credit may take in respect of secured asset namely; (a) Take possession of the secured asset including the right to transfer by way of sale, lease or assignment for realising the value thereof. (b) Take over management of the business of the borrower or part of such business, if severable which is relatable to the debt including the right to transfer by way of sale, lease or assignment if substantial part of the business is relatable to the debt. (c) Appoint receiver/manager to manage the secured asset whose possession has been taken over. (d) Issue notice in writing upon any person who has acquired the secured asset from the borrower calling upon him to make payments to the secured creditor or any amount which may be due and payable, in present or in future, to the borrower and such payment shall amount to due discharge of liability towards the borrowers. 16. Section 13, therefore, does not extinguish any pre-existing tenancy/leased right in the secured asset lawfully created prior to the issuance of notice under Section 13(2) of the Act of 2002. 17. So far as different modes of taking possession of the secured asset as envisaged under Section 13(4) of the Act may either be by the secured creditor on its own or by taking recourse to Section 14 of the Act. 17. So far as different modes of taking possession of the secured asset as envisaged under Section 13(4) of the Act may either be by the secured creditor on its own or by taking recourse to Section 14 of the Act. The procedure to be followed by the authorized officer while taking steps under Section 13(4) of the Acts by the creditor is laid down in Rule 8 of the Security Interest [Enforcement Rules, 2002 (hereinafter referred to as the 2002 rules)]. Rule 8(1) provides that the authorised officer shall take possession of the property by delivery of a possession notice under Appendix IV of the rules to the borrower and also by affixing a copy thereof on the outer door or at a conspicuous place of the secured asset. The authorised officer shall publish the notice of possession not later than seven days from the date of taking possession in two leading newspapers, one of which shall be in vernacular language, having wide circulation in the locality [Rule 8(2)]. After taking physical possession, the authorised officer shall take all necessary steps as is expected of an owner of ordinary prudence or preservation and protection of the secured asset [Rule 8(3) and (4)]. No sale of the asset by way of public auction or private agreement shall be without fixing reserved price in consultation with approved valuer and giving 30 days' notice to the borrower [Rule 8(5)]. Notice for sale of secured assets by public auction shall state, inter alia, the description of the secured asset including the details of encumbrances known to the secured creditor [Rule 8(6)]. In addition to the aforesaid procedure the secured creditor may also take recourse to section 14 by making an application before the Chief Metropolitan Magistrate or District Magistrate having local jurisdiction over the secured asset along with an affidavit disclosing particulars as required by the said section and the learned Magistrate being satisfied as to the disclosure of such particulars may pass an order to take possession of such asset through himself or his subordinate and upon taking such possession shall hand it over to the secured creditor. No act of the Magistrate under this Section may be challenged before any Court or authority [Section 14(3)]. 18. No act of the Magistrate under this Section may be challenged before any Court or authority [Section 14(3)]. 18. In the above circumstances, we have to examine the remedies available to a tenant claiming interest in a secured asset created prior to the creation of secured interest. Section 17 of the Act is relevant in this regard. Sub-Section 1 of Section 17 provides that any person (including the borrower) aggrieved by any measure under Section 13(4) may make an application before the DRT within 45 days of such action being taken. Different fees are prescribed for the borrower or any other person (as the case may be) for preferring such application. Sub-Section 3, inter alia, empowers the Tribunal to declare such impugned measure as invalid and to direct restoration of possession or management of the secured asset to the borrower and pass such order as the Tribunal may consider appropriate and necessary in relation to such impugned action. 19. Section 34 of the Act clearly puts an embargo on the jurisdiction of any Civil Court to entertain a suit or proceeding in respect of any matter which the Tribunal under the Act is empowered to determine. 20. Section 35 of the Act provides that in case of inconsistency, the Act shall prevail over other laws for the time being in force. 21. In Sondagar (supra) the Supreme Court relying on the expression “borrower” used in the Section 17(3) held that Tribunal had no power to restore possession to a lessee who is not a borrower and, therefore, such statutory provision was only illusory in respect of such a lessee who is dispossessed from the secured asset. Referring to Section 14(3) of the Act, it was further held that no challenge could be raised to an order passed under Section 14 of the Act except to challenge under Article 226/227 of the Constitution of India, by an aggrieved person. A registered lessee was, however, permitted to be heard before the learned Magistrate under Section 14 and raise resistance to an order taking possession by submitting a registered lease in his favour which was subsistent on that date. Duty was also cast on the secured creditor to state in the affidavit accompanying an application under Section 14 of the Act that the secured asset was not in the possession of a lessee under a valid lease. 22. Duty was also cast on the secured creditor to state in the affidavit accompanying an application under Section 14 of the Act that the secured asset was not in the possession of a lessee under a valid lease. 22. In the present appeal both the parties to the litigation have sought to interpret the aforesaid judgment to their advantage. While respondent/writ petitioner argued that bona fide pre-existing tenants enjoyed the same status as registered lessees under Transfer of Property Act and ought to be heard by the learned Magistrate before passing order under Section 14 of the Act, the appellant Bank referring to para 36 of the report insisted that apart from registered lessees no one had been accorded the right to be heard and resist an order under the said Section. 23. In the alternative, respondent/writ petitioner contends that they ought to be permitted to canvas and establish their tenancy rights before the Tribunal and resist the delivery of possession of the secured asset in view of United bank of India v. Satyawati Tondon Reported in (2010) 8 SCC 110 . 24. In Satyawati Tondon (Supra) the Apex Court held that any person (in that case, guarantor) was entitled to challenge any measure under Section 13(4) of the Act or action taken under Section 14 of the Act before the Tribunal under Section 17 of the Act. 25. In Jagadish Singh v. Heeralal reported in (2014) 1 SCC 479 , the Apex Court held that co-perceners of the secured asset were entitled to appeal under Section 17(1) of the Act and an independent suit was barred. 26. In Indian Overseas Bank v. Ashok Saw Mill Reported in (2009) 8 SCC 366 , the Apex Court opined that the intention of the Act is that while Banks and Financial Institutions have been vested with a stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting adjudication into the matter to declare any such action as invalid and also to restore possession even though possession may have been made over to the transferee. The Court further held that DRT has jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated in Section 13(4) of the Act. The Court further held that DRT has jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated in Section 13(4) of the Act. Action of the secured creditor under Section 14 is admittedly after steps were taken under Section 13(4) by the secured creditor in this case. 27. In Kanaiyalal Lalchand Sachdev v. State of Maharashtra reported in (2011) 2 SCC 782 , the Apex Court at para 22 of the judgment held that any person including borrower can challenge an application for action under Section 14 of the Act which constitutes an action after the stage of Section 13(4) of the Act before the Tribunal in an application under Section 17(1) of the Act. 28. On the other hand, the Apex Court in Standard Chartered Bank v. B. Nobel Kumar reported in (2013) 9 SCC 620 , opined that action taken under Section 14 of the Act is independent of measures taken under Section 13(4) of the Act and may be invoked without resorting to such measures. Under such circumstances, upon the borrower loosing possession of secured asset pursuant to an order under Section 14, he may assail an order of the Magistrate before the Tribunal (refer para 40). 29. Although measures under Section 13(4) of the Act are amenable to challenge under Section 17(1) of the Act, any act of the Magistrate under Section 14 is immune to such challenge in view of Section 14(3). Although Sub-Section 3 of Section 14 prohibits challenge to an act of the Magistrate under that Section but such provision does not preclude challenge to the steps taken under Section 14 by the secured creditor to take possession after following the measures under Section 13(4) of the Act had been resorted to in the light of opinion expressed in Kanaiyalal (Supra). 30. Subsequent to judgment in Sondagar (supra) the Apex Court in the case of Vishal N. Kalsaria v. Bank of India (Criminal Appeal No. 52 of 2016 arising out of SLP No. 8060 of 2015) clarified the ratio in Sondagar (supra) and at paragraph 25 observed as follows: “If no written lease deed exists, then such tenants are required to prove that the have been in occupation of the premises as tenants by producing such evidence in the proceedings under Section 14 of the SARFAESI Act before the learned Magistrate. Further, in terms of Section 55(2) of the special law in the instant case, which is the Rent Control Act, the onus to get such a deed registered is on the landlord. In light of the same, neither the landlord nor the banks can be permitted to exploit the fact of non-registration of the tenancy deed against the tenant.” 31. They again opined at paragraph 28 as under: “With reference to Sondagar (supra) cannot be understood to have held that the provisions of the SARFAESI Act override the provisions of the Rent Control Act, and that the Banks are at liberty to evict the tenants residing in the tenanted premises which have been offered as collateral securities for loans on which default has been done by the debtor/landlord.” 32. After analyzing the entire situation with reference to Sondagar (supra), the Transfer of Property Act and Rent Control Act in general at para 30 their Lordships were of the opinion as under: “It is a settled position of law that once tenancy is created, a tenant can be evicted only after following the due process of law, as prescribed under the provisions of the Rent Control Act. A tenant cannot be arbitrarily evicted by using the provisions of the SARFAESI Act as that would amount to stultifying the statutory rights of protection given to the tenant. A non-obstante clause (Section 35 of the SARFAESI Act) cannot be used to bulldoze the statutory rights vested on the tenants under the Rent Control Act. The expression ‘any other law for the time being in force’ as appearing in Section 35 of the SARFAESI Act cannot mean to extend to each and every law enacted by the Central and State legislatures. It can only extend to the laws operating in the same field.” 33. A judgment cannot read as a statute. A change in law or a relevant fact may make a world of difference to the applicability of its ratio to the facts of a particular case (Union of India v. Major Bahadur Singh reported in (2006) 1 SCC 368 para 11). 34. A judgment cannot read as a statute. A change in law or a relevant fact may make a world of difference to the applicability of its ratio to the facts of a particular case (Union of India v. Major Bahadur Singh reported in (2006) 1 SCC 368 para 11). 34. In Madia Chemicals Ltd. v. Union of India reported in (2004) 4 SCC 311 , a three judge Bench of the Apex Court while upholding the constitutionality of the Act of 2002, inter alia, held at paragraph 34 that the procedure adopted under the Act must be fair, reasonable and valid, though it may vary looking to the different situations needed to be tackled and object sought to be achieved. 35. West Bengal Premises Tenancy Act does not make the tenancies compulsorily registrable and in view of the clarified ratio of Sondagar (supra) in Kalsaria (supra) we are of the opinion that pre-existing tenancies created under the West Bengal Tenancy Act cannot stand extinguished by operation of SARFAESI Act. The remedies of such a tenant are to approach the magistrate and lead evidence to establish tenancy under Section 14 of the Act or if measures are taken under Section 13(4) of the Act to approach the Tribunal under Section 17 of the Act as the case may be. 36. Accordingly in view of the law declared in Kalsaria, Mardia Chemicals Limited, Kanaiyalal and Ashok Saw Mill we hold that a bona fide pre-existing tenant in the secured asset is entitled to assail measures taken by the secured creditor to take possession of the secured property under Section 13(4) of the Act as well as steps taken by the secured creditor under Section 14 of the Act before the Tribunal or the learned Magistrate as the case may be. 37. In the light of the above discussion and reasoning we direct the writ petitioner tenant to approach the learned Magistrate with an application to substantiate his contention of pre-existing tenancy, in case the appellant Bank seeks further course of action under Section 14 of the SARFAESI Act against the borrower in respect of the secured asset. The learned magistrate shall decide the controversy as indicated by the Apex Court in Kalsaria (supra). With aforesaid direction the appeal and the application are disposed of. Joymalya Bagchi, J. : I agree.