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2016 DIGILAW 1108 (KER)

Justin Varghese v. State of Kerala

2016-12-15

A.M.SHAFFIQUE

body2016
JUDGMENT : A.M. Shaffique, J. 1. Petitioner challenges the revenue recovery steps taken against the petitioner pending proceedings under the SARFAESI Act. 2. The short facts involved in the Writ Petition would disclose that the petitioner availed a loan of Rs. 25,00,000/- in the year 2012 from the 3rd respondent Bank mortgaging his property. When proceedings were taken under the SARFAESI Act (hereinafter referred to as ‘the Act’), the petitioner approached the Debts Recovery Tribunal (hereinafter referred to as ‘the Tribunal’) and had filed Securitisation Application under Section 17 of the Act. The said application is still pending. Petitioner submits that in the meantime, Exts.P1 and P2 notices had been issued under Section 7 of the Kerala Revenue Recovery Act (hereinafter referred to as ‘the KRR Act) and notice for attachment under Section 34 of the Act by which the petitioner is called upon to pay an amount of Rs. 29,28,967/- with interest and other costs. 3. The main contention urged by the petitioner is that there is no provision enabling the Bank to initiate revenue recovery proceedings against the petitioner and that too when proceedings are already taken by the Bank under the Act which is pending consideration before the Tribunal. 4. Counter affidavit has been filed by the 4th respondent inter-alia contending that the petitioner was initially given an overdraft facility of Rs. 40,00,000/- which was later reduced to Rs. 25,00,000/-. The overdraft was sanctioned as working capital for the business of trading in vegetables and provisions and also transporting the same to neighbouring States for sales. Sanction letter is produced as Ext.R4 (a). The respondent submits that the loan falls within the priority - MSE sector and in view of the same, the debt is liable to be recovered under the KRR Act. Reference is also made to Reserve Bank of India Guidelines dated 20.07.2012, Master Circular dated 02.07.2012 and Revised Guidelines dated 08.08.2012 in order to clarify that the loan is a priority sector loan. Petitioner places reliance upon the notification issued under Section 71 of the KRR Act as S.R.O. No. 1465/87 by which revenue recovery proceedings have been made applicable for recovery of amounts due from any person or class of persons in any bank on account of any loan advanced by the Bank under various development schemes. Banking is defined as a Banking Company as defined under the Banking Regulation Act, 1949. Banking is defined as a Banking Company as defined under the Banking Regulation Act, 1949. Development Scheme is defined as including “all priority sector advances and all financial assistance given through the bank under the schemes approved by the State/ Central Government or other Government agencies or the schemes administered by the development department with a view to improve the living conditions of the economically and socially weaker sections of the community.” According to the respondent Bank, being a priority sector advance given to the petitioner, they are entitled to proceed under the KRR Act. It is further contended that the proceedings of the Act shall not preclude the Bank from recovering the amount through revenue recovery proceedings which is only an alternative mode of recovery through the revenue authorities. 5. Heard Learned counsel for the petitioner and the learned counsel appearing for the 4th respondent Bank. 6. The short question to be considered in the Writ Petition is whether the respondent Bank is entitled to recover the amount by resorting to revenue recovery proceedings during the pendency of SARFAESI proceedings. 7. By virtue of Section 13 of the SARFAESI Act it is always open for the secured creditor to take such measures as provided under Section 13 without interference of the Court or Tribunal. Any person aggrieved by any measures taken under Section 13(4) of the Act is entitled to challenge the same by filing an appeal before the Tribunal under Section 17 of the Act. The question is whether there is any bar for the respondent Bank for simultaneously invoking the provisions of the KRR Act. Section 37 of the Act reads as under: “37. Application of other laws not barred.- The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1992 (51 of 1993) or any other law for the time being in force.” 8. Any other law for the time being in force as provided under Section 37 of the Act apparently includes the right of the Bank to recover the amount by any other proceedings known to law which includes initiating proceedings under the KRR Act as well. Hence I am of the view that the contention that initiation of proceedings under the Act is a bar for proceeding under the KRR Act cannot be sustained. 9. The other contention urged by the petitioner is that the loan granted by the Bank is not a priority sector advance for development scheme as stated in the notification S.R.O. No. 1465/87. The learned counsel argued that unless the enterprises of the petitioner is registered as a micro, small or medium enterprises as per the provisions of the Micro, Small or Medium Enterprises Development Act, 2006, the loan advance cannot be treated as a priority sector loan in terms with the RBI guidelines or Master Circular. 10. On the other hand, respondent has placed reliance on Ext.R4(a) which is a sanction letter dated 29.11.2012 wherein the letter is addressed to the petitioner in respect of his application for renewal/enhancement of Synd MSE Overdraft facility. The learned counsel placed reliance on the rate of interest to indicate that interest is basic rate + 4% presently 14.50% and in asterix it is stated that “subject to Bank’s policy guidelines of MSME.” It is therefore contended that when the loan is sanctioned, it is made dear that the loan is granted as per the guidelines of Micro, Small, Medium Enterprises (MSME). 11. The only question that requires consideration is whether the overdraft facility given to the petitioner amounts to priority sector advance or not. Ext.R4(b) is the agreement or hypothecation which indicates that the borrower is given a credit facility for meeting working capital for a shop at XVI/338, A2, Thekkineth Building, Nayarthode Junction, Angamaly. Nowhere in the hypothecation agreement it is mentioned that loan is granted under priority sector. Schedule 3 would show that the particulars of goods is stock-in-trade. Respondent Bank relies upon Ext.R4(c) dated 20.07.2012 which is a communication from the RBI which indicates revision of guidelines mentioned in the master circular on priority sector lending dated 02.07.2012. Ext.R4(c) contains the revised guidelines which will be operational from 20.07.2012. The overdraft facility in the present case was renewed as per sanction letter Ext.R4(a) dated 29.11.2012. Respondent Bank relies upon Ext.R4(c) dated 20.07.2012 which is a communication from the RBI which indicates revision of guidelines mentioned in the master circular on priority sector lending dated 02.07.2012. Ext.R4(c) contains the revised guidelines which will be operational from 20.07.2012. The overdraft facility in the present case was renewed as per sanction letter Ext.R4(a) dated 29.11.2012. Therefore, there cannot be any dispute regarding the application of the master circular. The categories under priority sector is separately therefore contended that when the loan is sanctioned, it is made dear that the loan is granted as per the guidelines of Micro, Small, Medium Enterprises (MSME). 12. The only question that requires consideration is whether the overdraft facility given to the petitioner amounts to priority sector advance or not. Ext.R4(b) is the agreement or hypothecation which indicates that the borrower is given a credit facility for meeting working capital for a shop at XVI/338, A2, Thekkineth Building, Nayarthode Junction, Angamaly. Nowhere in the hypothecation agreement it is mentioned that loan is granted under priority sector. Schedule 3 would show that the particulars of goods is stock-in-trade. Respondent Bank relies upon Ext.R4(c) dated 20.07.2012 which is a communication from the RBI which indicates revision of guidelines mentioned in the master circular on priority sector lending dated 02.07.2012. Ext.R4(c) contains the revised guidelines which will be operational from 20.07.2012. The overdraft facility in the present case was renewed as per sanction letter Ext.R4(a) dated 29.11.2012. Therefore, there cannot be any dispute regarding the application of the master circular. The categories under priority sector is separately categorized which includes micro and small enterprises. That the main contention of the Bank is that the petitioner’s retail business in vegetables, amounts to a micro and small enterprises and therefore, it being a priority sector, revenue recovery proceedings can be initiated. Reference is made to the master circular in the revised guidelines which indicates that the bank loans to micro and small enterprises both manufacturing and service are eligible to be classified under priority sector. The priority sector includes service enterprises in terms of Clause 2.1.2 which reads as under: “2.1.2. Service Enterprises Bank loans up to Rs. 1 Crore per unit to Micro and Small Enterprises engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006.” 13. The priority sector includes service enterprises in terms of Clause 2.1.2 which reads as under: “2.1.2. Service Enterprises Bank loans up to Rs. 1 Crore per unit to Micro and Small Enterprises engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006.” 13. Ext.R4(d) is the master circular relating to lending to priority sector issued by the RBI dated 02.07 2012. Various categories of priority sector has been mentioned as agriculture, micro and small enterprises, micro credit, educational loans and housing loans. In Chapter 2, service enterprises has been further classified as Micro (service) Enterprises and Small (service) Enterprises. Clauses 2.1.2 (b), (c) and (d) further read as under: “(b) Small (service) Enterprises Enterprises engaged in providing/rendering of services and whose investment in equipment [original cost excluding land and building and furniture, fittings and such items as in 2.1.2(a)] is more than Rs. 10 lakh but does not exceed Rs. 2 crore, irrespective of the location of the unit. (c) The small and micro (service) enterprises shall include small road & water transport operators, small business, professional and self-employed persons, and other service enterprises engaged in activities, viz. consultancy services including management services, composite broker services in risk and insurance management, Third Party Administration (TPA) services for medical insurance claims of policy holders, seed grading services, training-cum-incubator centre, educational institutions, training institutes, retail trade, practise of law i.e. legal services, trading in medical instruments (brand new), placement and management consultancy services, advertising agency and training centres, etc. and which satisfy the definition of micro and small (service) enterprises in respect of investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the services rendered or as may be notified under the MSMED Act, 2006) (i.e. not exceeding Rs. 10 lakhs and Rs. 2 crore respectively). (d) Loans granted by RRBs to micro and small enterprises (MSE) (manufacturing and services) are eligible for classification under priority sector, provided such enterprises satisfy the definition of MSE sector as contained in MSMED Act. 2006, irrespective of whether the borrowing entity is engaged in export or otherwise. The export credit granted by banks to MSEs may, however, be reported separately under heading “Export credit to micro and small enterprises sector.” 14. 2006, irrespective of whether the borrowing entity is engaged in export or otherwise. The export credit granted by banks to MSEs may, however, be reported separately under heading “Export credit to micro and small enterprises sector.” 14. There is no dispute about the fact that the retail trade can also be treated as micro and small enterprises. However, in order to come within the purview of priority sector loan, the concerned retail trade should also satisfy the definition of Micro and Small (service) Enterprises in respect of investment in equipment which is either exceeding Rs. 10 lakhs or Rs. 2 crores respectively. The cost and equipment should be the original cost excluding the land and building and furniture, fittings and other items which are not directly related to the service rendered or has to be notified under the MSMED Act, 2006. 15. In the present case, the agreement which has been produced as Ext.R4 (b) only indicates that a credit facility has been given for Rs. 40 lakhs. There is no mention about any facility being granted for investment in any equipment which is a primary criteria for grant of loan under the priority sector. Though the learned counsel for the respondent Bank produced various other circulars, I do not find any circular which clarifies the fact that the loan granted in the present case was a priority sector loan. Learned counsel for the respondent Bank submits that initially the loan was granted in the year 2008 in the name of T.S. Vegetables for Rs. 7 lakhs which was enhanced to Rs. 25 lakhs in the year 2011. The facility was further enhanced on 29.11.2012 for Rs. 40 lakhs in the name of Maveli Trading Company which again was reduced to Rs. 25 lakhs w.e.f. 30.6.2014. Specific reference is made to Ext.R4 (a) to indicate that the loan is a priority sector loan. It is only a sanction letter by which the rate of interest had been indicated as that of MSME sector. That by itself does not indicate that it is a priority sector loan coming within the definition aforesaid. 16. Learned counsel appearing for the Bank also placed reliance on the judgment of this Court in WP. (C) No. 7013/2012 decided on 15.11.2012. That by itself does not indicate that it is a priority sector loan coming within the definition aforesaid. 16. Learned counsel appearing for the Bank also placed reliance on the judgment of this Court in WP. (C) No. 7013/2012 decided on 15.11.2012. In that case, the petitioner was a dealer in rubber who challenged the revenue recovery proceedings on the ground that it is not a priority sector advance given to him. After considering the matter, it was held that being a small business, it is covered by the provisions of the circulars issued by Reserve Bank of India and such advances qualify to be priority sector advances and are recoverable under the Revenue Recovery Act. In that case, contention urged was that the arrangement does not qualify as a small business since the cost of equipment used for the purpose of business has not exceeded Rs. 20 lakhs. It was contended that the business of the petitioner does not require any equipment and unless the business in question requires and possesses equipments, the cost of which does not exceed Rs. 20 lakhs, the business does not qualify to be a small business as defined in the circular. It was observed by this Court that the cost of equipment specified in the notification is only upper limit and any business concern which has equipments, cost of which is within that limit, will be a small business as defined in the circular. It was therefore held that the business of the petitioner may require at least weighing equipments, the type of which depend upon the volume of business transacted and its investment is liable to be reckoned for the purpose. What is relevant to be considered and what is contended by the petitioner is that in so far as the loan is not granted for the purpose of acquisition of equipments, it cannot be treated as a priority sector loan. As rightly observed, in the hypothecation agreement, which is the only document produced, there is no mention of the loan being granted for acquisition of any equipment upto a specified limit upto either Rs. 10 lakhs or Rs. 20 lakhs, as the case may be. In the absence of any such mention in the agreement between the parties, it cannot be held that it is a priority sector loan. 10 lakhs or Rs. 20 lakhs, as the case may be. In the absence of any such mention in the agreement between the parties, it cannot be held that it is a priority sector loan. Necessarily, acquisition of equipment is a mandatory requirement for the purpose of treating a concern as either a small or micro medium enterprises. 17. I am of the view that from the factual aspects involved in the matter, it is rather clear that the loan granted to the petitioner is not under the priority sector warranting revenue recovery proceedings. In the result, I am of the view that the revenue recovery proceedings initiated at the instance of the respondent Bank is without any basis and accordingly this Writ Petition is allowed. Exts.P1 and P2 are quashed.