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2018 DIGILAW 644 (KER)

K. P. Roy v. Federal Bank Limited

2018-08-06

DAMA SESHADRI NAIDU

body2018
JUDGMENT : The petitioners, borrowers from the respondent Bank, faced recovery proceedings. After a notice under Section 13(2) of the SARFAESI Act, when the Bank sought to take symbolic possession under Section 13(4) of the Act, the petitioners filed S.A. No.74 of 2017 before the Debt Recovery Tribunal-I, Ernakulam. 2. Pending the SA, with no interim direction, the Bank took symbolic possession, and later invoked Section 14 for taking physical possession. Then the petitioners filed S.A. No.248 of 2017. Finally, the Tribunal dismissed both the S.As for non-prosecution. The Bank took physical possession of the property and fixed the date for sale, after serving notice on the petitioners, though. 3. Aggrieved, the petitioners filed W.P.(C) No.23936 of 2018, which was dismissed on 24th July 2018. This Court has observed that if the Bank took possession of the property pending the restoration applications before the Tribunal, that might give the petitioners a new cause of action. And they can as well approach the Tribunal, subject to other legal parameters. Indeed, the petitioners seem to have filed S.A. No.313 of 2018. The Tribunal issued notice and posted it to 07.08.2018; incidentally that is the date, when the Bank proposed to sell the property. Now the petitioners have filed this writ petition—against an order of adjournment. 4. Sri Shaijan C. George, the petitioners' counsel, has strenuously contended that Section 17(1) is unambiguous. According to him, once an S.A. is filed, Section 17(1) mandates that the Bank can take no further proceedings until the Tribunal adjudicates the issue. It could proceed further only then. In other words, Section 17(1) statutorily amounts to an automatic stay of further proceedings. 5. In the alternative, Sri George has submitted that the Tribunal had known that the Bank fixed 07.08.2018 as the date for auctioning the property. Therefore, rather than take up the interlocutory applications immediately, the Tribunal—as the learned counsel puts it—ironically posted the matter to the same date: 07.08.2018. To support his contentions that the Tribunal’s approach is legally flawed, Sri George has relied on Authorised Officer, Indian Overseas Bank v. Ashok Saw Mill, (2009) 8 SCC 366 . 6. Sri George also contends that the petitioners have been making all bona fide efforts to clear the loan. To elaborate, he submits that earlier the petitioners approached the Bank and, on 03.08.2018, submitted a representation, expressing their willingness to clear the debt in instalments. 6. Sri George also contends that the petitioners have been making all bona fide efforts to clear the loan. To elaborate, he submits that earlier the petitioners approached the Bank and, on 03.08.2018, submitted a representation, expressing their willingness to clear the debt in instalments. And, according to Sri George, the petitioners have also given a cheque for Rs.50 lakh, dated 17.08.2018, a post-dated one. To bring home the petitioners’ supposed bona fides, Sri George submits that recently the petitioners have paid Rs.30 lakh and closed one loan account. 7. In the end, Sri George submits that the Bank is proceeding to sell the property with reckless speed and utter disregard for the legal consequences. Instead, if the Bank provides "breathing time" to the petitioners, they will discharge the entire debt. And, in fact, they have been making all efforts to clear the loan, at the earliest. 8. In response, Sri Krishnadas P. Nair, the Bank's counsel, submits that the petitioners have repeatedly been abusing the Court process. He stresses that they have no bona fides. According to him, often, the Bank has offered them a long rope, so to say, to have the account, if not settled, at least regularized. Sri Nair also contends that even now if the petitioners have given any concrete proposal agreeing to clear the loan, the Bank is not averse to providing some more time to the petitioners. For this, the petitioners, Sri Nair insists, should pay substantial amount upfront and the balance in a few installments. 9. On the practical difficulties the Bank faces, Sri Nair has elaborated. According to him, if the courts often interfere with the Bank's exercising the statutory powers for recovering the loan—essentially public money—the Banks find it difficult to attract suitable bids from prospective purchasers. 10. According to Sri Nair, most often, the prospective bidders are wary of the judicial intervention, that they would be caught in the litigious crossfire, after paying a substantial amount. So he urges this Court not to interfere with the sale process the Bank has undertaken. 11. The petitioners, in the first place, ought not to have approached this Court, for there is no order to be impugned. To elaborate, Sri Nair has submitted that in the SA, the Tribunal issued only notice; then the petitioners rushed to this Court, as is their wont. 11. The petitioners, in the first place, ought not to have approached this Court, for there is no order to be impugned. To elaborate, Sri Nair has submitted that in the SA, the Tribunal issued only notice; then the petitioners rushed to this Court, as is their wont. He has also contended that if at all the notice-provides the petitioners with any cause of action, they ought to have approached the Debt Recovery Appellate Tribunal, a statutory body having plenary powers over the orders passed by the Primary Tribunal. Thus, he urges this Court to dismiss the writ petition. 12. Heard Sri Shaijan C. George, the petitioners' counsel, and Sri Krishnadas P. Nair, the Bank's counsel. 13. Indeed, just a week ago, this Court disposed of the petitioners’ W.P.(C) No. 23936 of 2018. It has not interfered with the Tribunal’s finding that the petitioners have been dragging the proceedings. For their lacking diligence, the Tribunal was constrained to dismiss both the S.As for non-prosecution. 14. True, the petitioners have filed restoration petitions. The mere filing of the restoration petitions, I reckon, does not amount to any license for the petitioners to obstruct the Bank’s all legitimate steps to recover the dues. And, indeed, the law is settled: if the S.As are restored, all the developments that may have taken place in the meanwhile will become lis pendence developments and depend on the outcome of the main proceedings. 15. Confining to the case on hand, I may note that the petitioners filed S.A. No.313 of 2018, assailing the sale notices, issued on 14.06.2018 and 21.06.2018. But instead of approaching the Tribunal, the petitioners first came to this Court. They filed W.P.(C) No.23936 of 2018. Soon after its dismissal, they filed S.A. No.313 of 2018. When the Tribunal issued a notice, they filed this writ petition, contending that the date of adjournment and the date of sale are the same. These judicial proceedings are besides those already pending before the Tribunal—the restoration petitions. 16. The petitioners' entire case hinges on Section 17(4) of the SARFAESI Act. Before my examining whether Section 14 comes to the petitioners' rescue, I may have to examine whether the petitioners have any cause of action to approach this Court. The Tribunal, in its wisdom, has issued a notice. Legion are the precedents that mere issuance of notice cannot give a cause of action. 17. Before my examining whether Section 14 comes to the petitioners' rescue, I may have to examine whether the petitioners have any cause of action to approach this Court. The Tribunal, in its wisdom, has issued a notice. Legion are the precedents that mere issuance of notice cannot give a cause of action. 17. On the other hand, no adjudicatory authority—be it a tribunal or a court—can be legally compelled to issue an interim direction stalling all further proceedings only because the suitor has a grievance. That apart, for many reasons, the adjudicatory authority may refuse to exercise its discretion and, instead, may go on to hear the matter on merits. True, this process takes time. Without any interim orders, once the respondent—say the Bank—proceeds further and takes definitive steps, they will all of course be subject to the outcome of the pending proceedings. So it cannot be said that the petitioners, not given interim protection, have lost their cause or the proceedings have become infructuous. As a result, I hold that the petitioners have no cause of action to invoke this Court's jurisdiction. 18. Sri George, the petitioner's counsel, lays frontal thrust on Section 17(4) of the Act. According to him, to recapitulate, Section 17(4) acts as an automatic stay. That is, by law, on the borrower’s invoking Section 17, the secured creditor cannot move further in its recovery of dues, until the Tribunal decides on the dispute. First, if section 17(4) could be interpreted thus, the whole process of filing an interlocutory application and seeking stay of further proceedings becomes otiose. Then, second, even the petitioner's coming here could be obviated. For the petitioner's entire grievance is the Tribunal is not staying the further proceedings under Section 17(4) of the Act. First, if section 17(4) could be interpreted thus, the whole process of filing an interlocutory application and seeking stay of further proceedings becomes otiose. Then, second, even the petitioner's coming here could be obviated. For the petitioner's entire grievance is the Tribunal is not staying the further proceedings under Section 17(4) of the Act. But given the persistent plea and repeated assertions by Sri George, I may examine Section 17(4) which reads: (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:... 19. Section 13 (1) of the Act excludes sections 69 and 69A of the Transfer of Property Act—the mortgagee’s power to sell and to appoint a receiver—from affecting the secured asset, that is the mortgaged asset. The secured creditor, in fact, can enforce its security interest in the property without judicial intervention, but by following this Act. On the borrower’s committing default and on the loan getting classified as a non-performing asset, the secured creditor, under section 13 (2), may notify the borrower to discharge his liabilities to the secured creditor within sixty days. After receiving the notice, if the borrower ignores the demand, the secured creditor can exercise its rights under sub-section (4). 20. As sub-section (3) mandates, the notice under subsection (2) must contain the details of the amount due from the borrower and the secured assets the creditor intends to sell if the borrower fails to pay the dues. On the other hand, after receiving the notice, the borrower may respond—raise objections. Then, the secured creditor will consider the objections and may find them unacceptable or untenable. Thus concluded, in fifteen days, it must communicate to the borrower why it refuses to accept the borrower’s objection or representation. The creditor’s rejection, at this stage, confers no right on the borrower to approach the Debts Recovery Tribunal under section 17 or the Court of District Judge under Section 17A. 21. Thus concluded, in fifteen days, it must communicate to the borrower why it refuses to accept the borrower’s objection or representation. The creditor’s rejection, at this stage, confers no right on the borrower to approach the Debts Recovery Tribunal under section 17 or the Court of District Judge under Section 17A. 21. The borrower’s objection rejected, he must discharge his liability within the period (60 days) specified in sub-section (2). If the debtor fails, the secured creditor may adopt one or more of these measures, as enumerated under sub-section (4), to recover his secured debt: (a) take possession of the secured assets, including the right to transfer the property by lease, assignment or sale, to realise the loan; (b) take over the management of the borrower’s business if that business or a severable part of it is held as security; (c) appoint a person to manage the already possessed secured assets; (d) require, by notice in writing, any transferee or assignee to pay the secured creditor the secured debt. Thus, if the transferee or assignee pays, under sub-section (5), it discharges that person from his obligation to the borrower—his transferor. 22. No borrower can, once put on notice under subsection (2), transfer by any means his secured assets, referred to in the notice, without the secured creditor’s prior written consent. We may, for our purpose here, ignore the other provisions of section 13. 23. Section 17 provides a means to the borrower to challenge the creditor’s measures to recover the secured debts. Aggrieved by any measure the creditor has taken under subsection (4) of section 13, the borrower or any other person, under section 17 (1) may apply in 45 days to the jurisdictional Debts Recovery Tribunal. Then, the Tribunal will consider, under sub-section (2), whether the measures the creditor has taken under sub-section (4) of section 13 accord with this Act and its rules. We may note sub-section (2) does not limit the secured creditor’s powers to take any steps under sub-section (4) of section 13. 24. After examining the case and evidence the parties produced, if the Tribunal concludes, as laid in sub-section (3), that the creditor’s any measure violates the Act and the rules, it will direct the creditor to restore the borrower’s possession over or business of the secured assets. 25. Then, the pivotal provision is sub-section (4) of Section 17. 24. After examining the case and evidence the parties produced, if the Tribunal concludes, as laid in sub-section (3), that the creditor’s any measure violates the Act and the rules, it will direct the creditor to restore the borrower’s possession over or business of the secured assets. 25. Then, the pivotal provision is sub-section (4) of Section 17. It reads thus: (4) If the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (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. 26. True, sub-section (5) impels the Tribunal to deal with the applications under sub-section (1) expeditiously—preferably within sixty days. But the proviso enables the Tribunal to extend the period, from time to time, for reasons to be recorded in writing. Still, the total period must not exceed four months. 27. As we noted earlier, under section 13 (4), the secured creditor can “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.” Sub-section (4) of section 17, on the other hand, employs the same expression at the beginning and at the end—a seeming contradiction. The creditor can, to begin with, take any steps under section 13 (4) as a part of realizing its loan. Those steps challenged, the secured creditor must have those steps already taken judicially approved. Once approved, it can continue taking steps under section 13 (4). 28. In other words, section 13 (4) contemplates a series of steps. The borrower can challenge the creditor’s action at any stage once the creditor takes—but not a mere contemplation to take—recourse to sub-section (4). Once the Tribunal finds fault with those steps, section 17 (3) will roll them back. On the contrary, if the Tribunal gives judicial imprimatur to those steps, the secured creditor can go ahead and complete the next steps. And it may, then, go beyond section 13 (4) to take all other steps, such as selling the property. 29. Once the Tribunal finds fault with those steps, section 17 (3) will roll them back. On the contrary, if the Tribunal gives judicial imprimatur to those steps, the secured creditor can go ahead and complete the next steps. And it may, then, go beyond section 13 (4) to take all other steps, such as selling the property. 29. Let us assume that the Tribunal, before finally adjudicating the matter the borrower brought before it, refuses to stay all further proceedings. For I fail to gather from section 17 that its invocation operates as an automatic stay. Unhindered, the secured creditor can take all steps under the Act, but all those steps, beginning from section 13 (4) and going beyond that provision, will depend on the outcome of the proceedings the borrower begun. 30. In Indian Overseas Bank v. Ashok Saw Mill, (2009) 8 SCC 366 , : the question is whether the DRT has jurisdiction under Section 17 to consider and adjudicate the steps the creditor takes beyond Section 13(4) or only the steps mentioned under Section 13(4). The Supreme Court has held that to prevent misuse of wide powers and to prevent prejudice to a borrower owing to the creditor’s errors, section 17 has introduced certain checks and balances. They allow the borrower or any other aggrieved person to question the measures the creditor has taken under and beyond subsection (4) of Section 13. The Court has gone on to observe: “The consequences of the authority vested in the DRT under sub-section (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(4) of the Act. The legislature by including sub-section (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases.” 31. On the alternative remedy, in Mathew K.C., the Supreme Court, at paragraph 6 of the judgment, highlights the exceptions. Here I find no such exception. If at all the petitioners suffered an adverse order or, even otherwise, found a cause for grievance, they could have as well gone before the Appellate Tribunal under Section 18 of the Act. They have not chosen to do so. 32. Here I find no such exception. If at all the petitioners suffered an adverse order or, even otherwise, found a cause for grievance, they could have as well gone before the Appellate Tribunal under Section 18 of the Act. They have not chosen to do so. 32. This Court has, in fact, been called upon to exercise its power of judicial review—certiorari. And the contours of certiorari stand well marked. Once the Tribunal has the jurisdiction to pass an order, unless that order suffers from perversity, it cannot be interfered with because correction of errors, other than jurisdictional, does not fall within this Court’s remit. At any rate, here, there is no order to be assailed, much less procedural perversity to be complained against. If the petitioners' logic has to be accepted—that is, once a stay petition is filed, the Tribunal must consider it before the respondents take any more steps—the whole adjudication gets stultified. Such a course of action is neither permissible nor possible. Under these circumstances, I hold that the writ petition cannot be sustained and is accordingly dismissed. I am constrained to record the petitioners' repeated approach to the Court as a relentless litigious assault on the Court’s time and resources. Though I am tempted to dismiss the writ petition with exemplary costs, I refrain because I do not want to inflict any more injury on the debtors.