Research › Search › Judgment

Andhra High Court · body

2020 DIGILAW 236 (AP)

Gayathri Cotton Mills v. Reserve Bank Of India

2020-03-13

D.RAMESH, RAKESH KUMAR

body2020
ORDER : RAKESH KUMAR, J. 1. Since in both these Writ Petitions petitioner and respondents are same and almost similar relief has been sought for, both the Writ Petitions were heard together and are being disposed of by this common order. However, the amounts recoverable from the petitioner by the 2nd respondent/bank are different i.e., in Writ Petition No.9080 of 2019, on the date of issuance of notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the SARFAESI Act’), which was issued on 08.05.2019, it was Rs.8,11,19,173/-(Rupees Eight Crores Eleven Lakhs Nineteen Thousand One Hundred Seventy Three only); whereas, in Writ Petition No.9081 of 2019, on the date of issuance of notice under Section 13(2) of the SARFAESI Act, which was issued on 08.05.2019, it was Rs.13,38,31,459/-(Rupees Thirteen Crores Thirty Eight Lakhs Thirty One Thousand Four Hundred Fifty Nine only). Since loan accounts of the petitioner in both the cases remained irregular, they were declared ‘Non Profitable Assets’ (hereinafter referred to as ‘NPAs’) and thereafter notices under Section 13(2) of the SARFAESI Act were issued regarding the outstanding dues, which have already been mentioned hereinabove. After issuance of notice, it has been pleaded by the petitioner that the petitioner filed an objection and raised an issue that the accounts were not declared NPAs in accordance with law, rather it was against the guidelines issued by the Reserve Bank of India. Subsequently, without any action being taken by the 2nd respondent/bank, under Section 13(4) of the SARFAESI Act, the aforesaid two Writ Petitions were filed. Along with the Writ Petitions, Interlocutory Application vide I.A. No.1 of 2019 was filed in W.P. No.9080 of 2019. By order dated 12.07.2019, a co-ordinate bench of this Court, while issuing notice to the respondents, in I.A. No.1 of 2019 granted interim order of stay for a limited period and from time to time it extended and is continuing till date. Similarly, in Writ Petition No.9081 of 2019, while directing for issuance of notice to the respondents in I.A. No.1 of 2019, interim order of stay was passed for a limited period, which was being extended from time to time and still interim order is operative. 2. Similarly, in Writ Petition No.9081 of 2019, while directing for issuance of notice to the respondents in I.A. No.1 of 2019, interim order of stay was passed for a limited period, which was being extended from time to time and still interim order is operative. 2. At the time of hearing, Smt.V.Dyumani, learned counsel for the petitioner in both the Writ Petitions, emphatically argued that the 2nd respondent/bank, contrary to the guidelines issued by the Reserve Bank of India, has declared the petitioner’s accounts as NPAs and since declaration of the accounts as NPAs itself was illegal, the petitioner is entitled to invoke the writ jurisdiction of this Court. 3. It has been argued that the 2nd respondent/bank has issued a letter on 31.03.2019 showing the accounts of the petitioner as ‘standard’ and as such without expiry of 90 days or 120 days, showing the accounts as irregular, there was no reason for declaring the accounts of the petitioner as NPAs. In the Writ Petitions to this effect, certificates issued by the 2nd respondent/bank, dated 31.03.2019, have been brought on record. Learned counsel for the petitioner has also taken us to the RBI guidelines, which are part of these Writ Petitions and emphasized by referring to Page 60 that what is called ‘out of order’ and when an account can be treated as such. Clause No.2.2 deals with ‘out of order’. She emphasized that an account can be treated as ‘out of order’ if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days. She has also highlighted clause No.4.2 under the heading ‘accounts with temporary deficiencies’. She, by way of referring to above said guidelines, has reiterated that the respondent/bank has unauthorizedly and incorrectly declared the petitioners accounts as NPAs. 4. On question being raised as to whether the Writ Petitions for such relief’s can be maintained or not, Smt.V.Dyumani, learned counsel for the petitioner, placed heavy reliance on a Division Bench judgment of this Court in M/s.Sravan Dall Mill Private Limited v. Central Bank of India and another, AIR 2010 (AP) 35 (1) and submits that similar question was raised in the said Writ Petition i.e., W.P. No.18089 of 2006 and has referred to Paragraph No.17 of the said judgment, which is reproduced herein below: “17. Thus, when measures are not taken by the creditor under Section 13(4) of the SARFAESI Act, the borrower would be disabled from invoking the jurisdiction of DRT under Section 17 of the SARFAESI Act. Thus, the grievance of a borrower regarding asset classification and consequential invocation of the SARFAESI Act by issuing notice under Section 13(2) of the SARFAESI Act, cannot be redressed under Section 17 of the SARFAESI Act in the absence of invocation of Section 13(4) of the SARFAESI Act and judicial review under Article 226 is the only remedy.” 5. Learned counsel for the petitioner has also referred to certain circulars issued by the RBI, which have been incorporated in Paragraph Nos.13 and 14 of the reply affidavit filed by the petitioner. In Paragraph Nos.13 and 14 of reply to the counter-affidavit, the petitioner has referred two circulars of the RBI. The statements made in Paragraph Nos.13 and 14 of reply to the counter-affidavit are reproduced herein below: “13. It is submitted that the Petitioner is a MSME Unit and registered under GST and as per the RBI Circular No.RBI/2017-18/186;DBR.No.BP.BC.108/21.04.048/2017-17,dated 06.06.2018, the account of the MSME is permitted to clear the over dues within a period of 120 days during the period 01.03.2019 to 30.04.2019. In the present case, the Respondent bank without giving 120 days time in a hurried manner classified the account of the Petitioner as NPA on 30.04.2019. The classification of the account as NPA is a total violation of the guidelines issued by RBI. 14. It is submitted that the Petitioner is a MSME Unit and is entitled for one-time restructuring of the loan as per the RBI Circular No.RBI/2018-19/100; DBR.No.BO.BC.18/21.04.048/2018-19, dated 01.01.2019. It is submitted that the Petitioner has been requesting the Respondent Bank to give an opportunity to the Petitioner and restructure the loan in order to revive or/to carry out its activities in a smooth manner. The Respondent bank for the reasons best known to it has not given an opportunity to the Petitioner and failed to restructure the account.” 6. Taking clue from the Circulars of RBI regarding which statements have been disclosed in Paragraph Nos.13 and 14 of the reply affidavit filed by the petitioner, coupled with the stand taken in the Writ Petitions, learned counsel has argued that the petitioner’s accounts were incorrectly declared NPAs. Taking clue from the Circulars of RBI regarding which statements have been disclosed in Paragraph Nos.13 and 14 of the reply affidavit filed by the petitioner, coupled with the stand taken in the Writ Petitions, learned counsel has argued that the petitioner’s accounts were incorrectly declared NPAs. She has further argued that the petitioner is entitled to the relief’s sought for in the Writ Petitions and the demand notice, dated 08.05.2019, issued under Section 13(2) of the SARFAESI Act and caution notice, dated 17.06.2019, published in Eenadu newspaper claimed mortgage rights on the property i.e., vacant land located at D.No.31-A and 30-B of Kurnutala Village, Prattipadu Mandal, Guntur District, admeasuring Ac.0.75 cents in both the Writ Petitions are liable to be set-aside and prayed for allowing both the Writ Petitions. 7. Sri C.Subodh, learned standing counsel, appearing on behalf of 2nd respondent/bank, has emphatically opposed the prayer made in these Writ Petitions and raised an objection on the point of maintainability of the Writ Petitions. 8. Learned counsel for the 2nd respondent/bank, by way of referring to the facts disclosed in the counter-affidavit, has argued that the bank has rightly declared the accounts of the petitioner as NPAs, since they remained irregular. He has referred to different intimations issued by the bank to the petitioner showing the accounts of the petitioner were irregular. He has referred to the intimations, dated 11.01.2019, 05.02.2019, and 02.03.2019 to show that regularly the petitioner was intimated that his accounts were irregular and requested for regularization of the same. Those documents have been brought on record at Page Nos.10, 12 and 14 respectively of the counter affidavit filed by the respondent/bank in W.P. No.9080 of 2019. He has referred to the intimations, dated 11.01.2019, 05.02.2019, and 02.03.2019 to show that regularly the petitioner was intimated that his accounts were irregular and requested for regularization of the same. Those documents have been brought on record at Page Nos.10, 12 and 14 respectively of the counter affidavit filed by the respondent/bank in W.P. No.9080 of 2019. As per the learned counsel for the 2nd respondent-bank, since despite repeated intimations, accounts were not regularized for several months, the 2nd respondent/bank was constrained to issue notice under Section 13(2) of the SARFAESI Act on 08.05.2019 calling upon the petitioner to discharge in full liability i.e., liability of Rs.8,11,19,173/-(Rupees Eight Crores Eleven Lakhs Nineteen Thousand One Hundred Seventy Three only) in Writ petition No.9080 of 2019 with an intimation that the petitioner would be liable to pay overdue/future interest at the contractual rate on the aforesaid amount together with incidental expenses, costs and charges etc., Similarly, notice under Section 13(2) of the SARFAESI Act was issued on the same date against the petitioner in W.P. No.9081 of 2019 for discharging the liability to the extent of Rs.13,38,31,459/-(Rupees Thirteen Crores Thirty Eight Lakhs Thirty One Thousand Four Hundred Fifty Nine only). It was submitted by Sri C.Subodh, learned counsel for the 2nd respondent/bank, that instead of clearing the dues, the petitioner filed un-necessary and unsustainable petitions on the point of declaring the accounts as NPAs. 9. Further, it has been emphatically argued by way of referring to the facts disclosed in the counter-affidavit that there is no error in declaring the accounts of the petitioner as NPAs. In sum and substance, the 2nd respondent/bank has not accepted the plea of the petitioner that the accounts were incorrectly declared NPAs. Sri C.Subodh, has also argued that intimation regarding rejection of objection was also communicated. To strengthen his submission regarding non-maintainability of the Writ Petitions, Sri C.Subodh, has placed heavy reliance on a judgment of the Hon’ble Supreme Court in Mardia Chemicals Limited v. Union of India and others, 2004 (4) SCC 311 , and has specifically referred to Paragraph Nos.77 and 80(1), (2), and (3), which are quoted herein below: “77. It is also true that till the stage of making of the demand and notice under Section 13(2) of the Act, no hearing can be claimed for by the borrower. It is also true that till the stage of making of the demand and notice under Section 13(2) of the Act, no hearing can be claimed for by the borrower. But looking to the stringent nature of measures to be taken without intervention of court with a bar to approach the court or any other forum at that stage, it becomes only reasonable that the secured creditor must bear in mind the say of the borrower before such a process of recovery is initiated. So as to demonstrate that the reply of the borrower to the notice under Section 13(2) of the Act has been considered applying mind to it. The reasons howsoever brief that may be for not accepting the objections, if raised in the reply, must be communicated to the borrower. True, presumption is in favour of validity of an enactment and a legislation may not be declared unconstitutional lightly more so, in the matters relating to fiscal and economic policies resorted to in the public interest, but while resorting to such legislation it would be necessary to see that the persons aggrieved get a fair deal at the hands of those who have been vested with the powers to enforce drastic steps to make recovery. 80. Under the Act in consideration, we find that before taking action a notice of 60 days is required to be given and after the measures under Section 13(4) of the Act have been taken, a mechanism has been provided under Section 17 of the Act to approach the Debt Recovery Tribunal. The above noted provisions are for the purposes of giving some reasonable protection to the borrower. Viewing the matter in the above perspective, we find what emerges from different provisions of the Act, is as follows:- 1. Under sub-section (2) of Section 13 it is incumbent upon the secured creditor to serve 60 days notice before proceeding to take any of the measures as provided under sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debt Recovery Tribunal under Section 17 of the Act, at that stage. 2. As already discussed earlier, on measures having been taken under sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before the Debt Recovery Tribunal. 3. That the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition as it may deem fit and proper to impose. 4. …………………………………..” 10. According to learned counsel for the 2nd respondent/bank, the petitioner would be at liberty to raise all the points after issuance of possession notice under Section 13(4) of the SARFAESI Act before the Debts Recovery Tribunal invoking jurisdiction under Section 17 of the SARFAESI Act and Writ Petitions may not be entertained. 11. Besides hearing learned counsel for the parties, having perused the material on record, prima-facie, we are of the opinion that if High Court starts entertaining Writ Petitions relating to the dispute with regard to declaring the account of the borrower as NPA, the whole object of the SARFAESI Act will be frustrated and as such to avoid interference with the procedure adopted for recovery of the loan amount which, admittedly, is a public fund, it would be better to put self imposed restriction on ourselves. Moreover, in a case reported in United Bank of India v. Satyawati Tondon and others, 2010 (8) SCC 110 , the Hon’ble Supreme Court in detail has discussed almost all the provisions under the SARFAESI Act and expressed displeasure on the question of interference by the High Courts. It would be beneficial to quote here Paragraph Nos.40 to 43 of the said judgment, which are as follows: “40. It would be beneficial to quote here Paragraph Nos.40 to 43 of the said judgment, which are as follows: “40. In view of the law laid down in the aforementioned cases, it must be held that the High Court completely misdirected itself in assuming that the appellant could not have initiated action against respondent No.1 without making efforts for recovery of its dues from the borrower, Respondent No.2. 41. The facts of the present case show that even after receipt of notices under Section 13(2) and (4) and order passed under Section 14 of the SARFAESI Act, Respondent Nos.1 and 2 did not bother to pay the outstanding dues. Only a paltry amount of Rs.50,000/-was paid by Respondent No.1 on 29.10.2007. She did give an undertaking to pay the balance amount in installments but did not honour her commitment. Therefore, the action taken by the appellant for recovery of its dues by issuing notices under Sections 13(2) and 13(4) and by filing an application under Section 14 cannot be faulted on any legally permissible ground and, in our view, the Division Bench of the High Court committed serious error by entertaining the writ petition of Respondent No.1. 42. There is another reason why the impugned order should be set aside. If Respondent No.1 had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14, then she could have availed remedy by filing an application under Section 17(1). The expression ‘any person' used in Section 17(1) is of wide import. It takes within its fold, not only the borrower but also guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective. 43. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective. 43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi-judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, the High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute.” 12. This proposition has been reiterated by the Hon’ble Supreme Court and again in the year 2018, in Authorized Officer, State Bank of Travancore and another v. Mathew K.C., 2018 (3) SCC 85 , the Hon’ble Supreme Court reiterated the settled principle and deprecated interference by the High Courts in exercising jurisdiction under Article 226 of the Constitution of India in a case arising out of SARFAESI Act. This Court is reminded by the observation made in Paragraph 27 of the Hon’ble Supreme Court in Satyawati Tondon, which is as follows: “27. It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection.” 13. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection.” 13. In sum and substance, the law regarding interference by the High Court in cases of SARFAESI Act is settled that the High Court may keep self imposed restriction in interfering with the proceeding in a case relating to SARFAESI Act since the SARFAESI Act is a code in itself. 14. Besides the law laid down by the Hon’ble Supreme Court, in the instant cases, the petitioner has come to this Court only after issuance of notice under Section 13(2) of the SARFAESI Act. As per the statutory provision, any step taken under Section 13(2) of the SARFAESI Act is not assailable either before the Debts Recovery Tribunal or before any other Court. Even then the petitioner has approached this Court where the outstanding due is Rs.8,11,19,173/-(Rupees Eight Crores Eleven Lakhs Nineteen Thousand One Hundred Seventy Three only) and Rs.13,38,31,459/-(Rupees Thirteen Crores Thirty Eight Lakhs Thirty One Thousand Four Hundred Fifty Nine only) respectively in both the cases. 15. At this juncture, it would be appropriate to refer Section 13(2) with its proviso (3A), which is as follows: “13. Enforcement of security interest—(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4). ………………… (3) ……………………. ………………… (3) ……………………. (3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.” 16. Meaning thereby at the stage of issuance of notice under Section 13(2) of the SARFAESI Act there would be difficulty for the High Court to interfere. However, since this issue has already been discussed by a coordinate bench of composite State of High Court of Andhra Pradesh in M/s. Sravan Dall Mill1, we may not record any specific finding regarding maintainability of the Writ Petitions. However, the core question in the present Writ Petitions has been raised by the petitioner regarding declaring the accounts as NPAs. It is the stand of the petitioner that his accounts were incorrectly declared as NPAs, whereas the 2nd respondent/bank has seriously disputed the stand taken by the petitioner and it has been reiterated that the bank has rightly and correctly declared the accounts of the petitioner as NPAs. 17. On examination of the pleadings of both the parties, certainly, the subject regarding declaration of the accounts as NPAs appears to be disputed and in case of disputed fact, it would be difficult for this Court to exercise its writ jurisdiction. It is settled law that disputed fact may not be settled while exercising power under Article 226 of the Constitution of India. Moreover, in Mardia Chemicals, it has been already clarified that even dispute regarding declaring the asset/account as NPA can be raised by the borrower under Section 17 of the SARFAESI Act at appropriate stage. It is settled law that disputed fact may not be settled while exercising power under Article 226 of the Constitution of India. Moreover, in Mardia Chemicals, it has been already clarified that even dispute regarding declaring the asset/account as NPA can be raised by the borrower under Section 17 of the SARFAESI Act at appropriate stage. Considering the fact that the petitioner even after issuance of possession notice under Section 13(4) of the SARFAESI Act can raise such grievance before the Debts Recovery Tribunal under Section 17 of the SARFAESI Act, it would not be proper for this Court to interfere into the matter at such initial stage that to on disputed question of fact and as such, we do not find any ground to issue any writ in favour of the petitioner and against the respondents. 18. Accordingly, both the Writ Petitions stand dismissed. There shall be no order as to costs. In view of dismissal of these Writ Petitions, interim orders granted earlier stand automatically vacated. 19. As a sequel, Miscellaneous Petitions, if any, pending in these Writ Petitions, shall stand dismissed.