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2016 DIGILAW 716 (KAR)

Manappuram Finance Ltd. v. State of Karnataka

2016-09-23

A.S.BOPANNA

body2016
ORDER : A.S. Bopanna, J. The petitioner is before this Court assailing the order dated 21.03.2016 whereby the 2nd respondent has directed the petitioner to stop further auction proceedings. 2. The petitioner is a company registered under the provisions of the Companies Act, 1956 having its registered office in the State of Kerala and branches at different places in the country including in the State of Karnataka. The petitioner is stated to be engaged in the business of lending money on gold/ornaments being pledged with the petitioner. In that regard, the petitioner being a Non-banking Financial Corporation is also regulated by the Reserve Bank of India as provided under Chapter III B of the Act. In that light, the borrowers in the State of Karnataka have also pledged their gold/articles and have availed loan. Since according to the petitioner the loans have remained unpaid in respect of such pledges, the pledged gold/articles are to be brought to sale and the money due to the petitioner-Company is to be recovered. In that regard, a paper publication was made indicating the account numbers maintained in different branches of which the same was being put for auction. At that point the 2nd respondent, on taking note of the same and also keeping in view the large number of complaints being received with regard to the nature of activities of not only the petitioner but similar Finance Companies have issued the communication dated 21.03.2016 as at Annexure 'A' to the petition herein whereby the petitioner has been directed not to proceed further with the auction. It is in that circumstance, the petitioner is before this Court. 3. The respondents have filed their objection statement wherein a reference to the publication in the newspaper is made and a copy of the same is produced at Annexure 'R1' to articulate that the same does not provide clear details due to which the gold/articles pledged by innocent citizens of the State would be arbitrarily sold without a transparent procedure. Therefore, the respondents are required to step in and protect the interest of such depositors. In that regard, reference is also made to the farmers suffering the loss due to drought and not being in a position to repay the loans as exorbitant interest is being charged by the petitioner. Therefore, the respondents are required to step in and protect the interest of such depositors. In that regard, reference is also made to the farmers suffering the loss due to drought and not being in a position to repay the loans as exorbitant interest is being charged by the petitioner. Further reference is also made to the provisions contained in the Karnataka Money Lenders Act and it is pointed out that the exemption which had been provided to the petitioner earlier under Section 2(10)(iv)(b) of the Act has now been withdrawn and in that view the petitioner would have to subject itself to the provisions contained in this Act. In that view, the respondent seek to sustain their action and it is contended that the action of the petitioner in conducting the auction in such manner cannot be permitted. Hence, it is contended that the prayer as made in the petition is liable to be rejected. 4. The petitioner has filed the rejoinder to the objection statement and apart from reiterating the contentions urged in the petition, the petitioner has also indicated that the withdrawal of the exemption under the Money Lenders Act has been assailed in W.P. No.33358/2016 and through the order dated 15.06.2016 the withdrawal of exemption has been stayed. At this point of time, the exemption still subsists and the respondents therefore, cannot interfere with the business of the petitioner. 5. In the light of the pleadings put forth by the parties, I have heard the learned counsel for the petitioner and the learned Government Advocate and perused the petition papers. 6. At the outset it is necessary to indicate that the issue relating to the exemption granted under the Money Lenders Act, the withdrawal of the same and the same being challenged, is a matter which is required to be considered in the relevant writ petition where such issues have been raised. In the instant petition, the issue relates to the auction notice published by the petitioner proposing to bring to auction the pledged gold/articles of the different borrowers and in that light the communication dated 21.03.2016 addressed to the petitioner restraining them from proceeding further with the auction. In the instant petition, the issue relates to the auction notice published by the petitioner proposing to bring to auction the pledged gold/articles of the different borrowers and in that light the communication dated 21.03.2016 addressed to the petitioner restraining them from proceeding further with the auction. With regard to the mode and manner in which the petitioner has to exercise its right to recover the loan, what is relied on by the petitioner at Annexure 'D' is the guidelines dated 26.03.2012 of the Reserve Bank of India which indicates the procedure that is required to be followed. 7. In terms thereof, the petitioner - Company themselves have formulated the auction policy as at Annexure 'F' to the petition. Both the regulations of the RBI which is also adopted by the petitioner provides for transparent manner of conducting the auctions and also the restrictions which are placed while conducting such auction. No doubt while taking note of the transparent auction procedure not merely the actual conduct of auction is necessary to be kept in view but the same should appear transparent from the stage the auction notice is published. As per the procedure laid down, the individual notices no doubt is required to be issued to the borrowers. It is only thereafter, the public notice is to be issued for the purpose of conducting the auction. If this aspect of the matter is kept in view and the present publication as at Annexure 'R1' which has raised the present question for consideration is taken note, certainly the respondents to the said extent were justified in directing the petitioner to put on hold the further process of the auction. A perusal of the notification does not refer to the name of the borrower, the details of the article sought to be auctioned, the quantum of amount due from the borrower and the reserve prices fixed after assessing its value. Such indication in the publication is not only necessary for general public namely the auction purchasers who take part in the auction process and purchase the said articles but should also to be to the benefit of the borrowers so that if the borrowers have any objection with regard to the same, they could put forth their contentions. 8. Such indication in the publication is not only necessary for general public namely the auction purchasers who take part in the auction process and purchase the said articles but should also to be to the benefit of the borrowers so that if the borrowers have any objection with regard to the same, they could put forth their contentions. 8. In that light, though at that point of time the 2nd respondent was justified in issuing the communication, such communication cannot be of such nature where the petitioners would be totally prevented from carrying on their business for which they have been established. Therefore, the appropriate course would be to direct the petitioner to comply with such requirements and take out publication in a more explicit manner and under such circumstance, if any of the borrowers file objections against the petitioner, their grievance could be redressed. That apart, when such publication is made whether any of the borrowers approach the respondents herein or the respondents while taking note of such publications find any objections with specific reasons for raising such objections, in such individual cases certainly, the respondents may thereafter issue notice to the petitioners call for particulars and if action is required, the relevant law under which the auction is proposed may also be made known to the petitioner. However, such a general communication to the petitioner stating that the interest is being charged at higher rate cannot be accepted unless in specific terms the same is brought to the notice of the petitioner. 9. Therefore, keeping all these aspects in view since the communication dated 21.03.2016 lacks all these particulars, the same is quashed. However, the petitioner while proceeding further shall take out fresh publication indicating specific details in the manner as indicated therein and thereafter proceed with the auction. As indicated, if in specific case the respondents have any objection, the petitioner shall be notified in this regard with specific details and only in such of those specific cases appropriate action will be taken in accordance with law. In terms of the above, the petition stands disposed of.