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2024 DIGILAW 664 (PNJ)

Ess Ell Embroidery v. Bank of India

2024-04-05

AMARJOT BHATTI, LISA GILL

body2024
JUDGMENT Mrs. Lisa Gill, J. (Oral) Prayer in this writ petition is for setting aside rejection of objections filed by petitioners under Section 13(3A) of Securitization and Reconstruction of Financial Asset Assets and Enforcement of Security Interest Act, 2002 (for short SARFAESI Act), vide Communication dated 10.02.2024, Annexure P-II. There is a further prayer for directing respondents no.1 and 2 to pass a speaking order besides quashing notice dated 06.12.2023, Annexure P-9, under Section 13(2) of SARFAESI Act. 2. It is submitted that petitioner no.1 is a partnership firm with petitioner no.2 being its managing partner. Petitioner-firm is claimed to be registered as MSME unit under The Micro, Small and Medium Enterprises Development Act, 2006. Cash credit facility to the tune of Rs. 90,00,000/- was availed of by the petitioners, date of which is not specifically mentioned. It is stated that due to outbreak of Pandemic COVID-19, business of petitioners was affected. Emergency Credit Line Guarantee Scheme (ECGLS) was availed of and further credit of Rs. 67,00,000/- was availed of. However, petitioners account was declared Non Performing Asset (NPA) on 12.09.2023, allegedly in blatant violation of Reserve Bank of India (RSBI) guidelines namely Master Circular- Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances. Moreover, respondent-Bank, it is stated was under a mandatory obligation to first put up petitioner's case for revival before the Designated Committee in terms of RBI Circular dated 17.03.2016 for Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises. Objections under Section 13(3A) of SARFAESI Act were filed by petitioners on 09.11.2023, upon which respondent-Bank withdrew notice dated 04.12.2023 on the basis of technical grounds. It is stated that petitioners thereafter again requested the respondent-Bank for referring the matter to the Designated Committee. However, in utter disregard of provisions of law, another notice under Section 13 (2) of SARFAESI Act was issued on 06.12.2023, which is verbatim the earlier notice dated 14.09.2023, demanding deposit of a sum of Rs. 2,76,86,308.20/-. Detailed objections were again filed by petitioners under Section 13(3A) of SARFAESI Act, however, respondent-Bank, it is stated rejected the objections in a mechanical and perfunctory manner vide a non speaking communication dated 10.02.2024, Annexure P-II. Aggrieved therefrom, present writ petition has been filed. 3. Learned counsel for petitioners vehemently argued that respondent-Bank is under a statutory obligation to decide the objections filed by petitioners by passing a reasoned order. Aggrieved therefrom, present writ petition has been filed. 3. Learned counsel for petitioners vehemently argued that respondent-Bank is under a statutory obligation to decide the objections filed by petitioners by passing a reasoned order. Once this exercise has not been carried out, petitioners are entitled to approach this Court. Learned counsel for petitioners vehemently argued that respondent-Bank is under a mandate to furnish specific reasons for rejection of objections filed by petitioners. Compliance with Section 13(3A) of SARFAESI Act is mandatory in nature and not directory. Reference is made to judgment of Hon'ble the Supreme Court in ITC Limited v. Blue Coast Hotels Limited, (2018) 15 SCC 99 , to submit that as per requirement of Section 13(3A) of SARFAESI Act, it is active consideration by the creditor which is required and a reasoned order to be passed indicating the reasons for non acceptance of the objections/representation by the debtor. It was further argued that Section 13(3A) of SARFAESI Act had been incorporated in the SARFAESI Act to protect the interest of the borrower. Once there is violation thereof, present writ petition should be entertained. It is submitted that this is an aspect which has not been considered by this Court in decision dated 18.12.2023, titled 'M/s Technico Strips and Tubes Private Limited and another v. Deutsche Bank AG and another'. Therefore, present writ petition should be entertained and allowed. 4. We have heard learned counsel for petitioners and have gone through the file with their able assistance. 5. It is a matter of record that petitioner-firm claiming to be registered as MSME unit availed of credit facilities from the respondent-Bank. It is further not denied that there was financial indiscipline on the part of petitioners, for reasons as may be. Declaration of petitioners account to be NPA is challenged on the ground that it is in violation of RBI Circulars including Circular dated 17.03.2016 inasmuch as its case for restructuring and revival was not placed before the Designated Committee besides being in violation of other RBI guidelines. Insofar as this aspect is concerned, same is squarely covered against petitioners in view of order dated 18.12.2023, passed in CWP No 2657 of 2022, titled M/s Technico Strips and Tubes Private Limited and another v. Deutsche Bank AG and another, wherein it has been held as under:- "26. Insofar as this aspect is concerned, same is squarely covered against petitioners in view of order dated 18.12.2023, passed in CWP No 2657 of 2022, titled M/s Technico Strips and Tubes Private Limited and another v. Deutsche Bank AG and another, wherein it has been held as under:- "26. We have also gone through provisions of MSME act 2006, however, do not find any ground whatsoever which calls for interference by us in the present writ petitions. It has been held by Hon'ble the Supreme Court in Kotak Mahindra Bank Limited v. Gimar Corrugators Private Limited, Civil Appeal No. 6662 of 2022, d/d 05.01.2023 that MSME act does not prevail over SARFAESI Act. To the contrary provisions of SARFAESI Act have overriding effect by virtue of Section 35 thereof. Therefore, contentions on behalf of petitioners that present writ petitions should be entertained on account of petitioners being MSMEs is devoid of any merit. Even, if it is accepted that all petitioners are MSMEs (an assertion which has been strongly contested in some of the cases), it cannot be held that petitioners are not amenable to provisions of SARFAESI Act or that an exception is to be carved out for MSMEs enabling them to bye-pass specific provisions of SARFAESI act. Contention on behalf of petitioners that they would be rendered remediless in such a situation, is totally unsubstantiated, in the given factual matrix, hence rejected. 27. We also do not find any merit in the argument raised by learned counsel for petitioners that there is a pure question of law involved in these writ petitions or that an exceptional or extraordinary circumstance is carved out which calls for interference by this Court in exercise of jurisdiction under Article 226 of the Constitution of India, at this stage. 28. Relationship between the respondent-Bank/Financial Institutions and petitioners is clearly governed by privity of contract between parties. Whether there has been any violation of contractual stipulation between the parties or of the RBI regulations as has been urged before us, is necessarily a mixed question of fact and law. We do not find any merit in the argument that learned DRT does not have power or jurisdiction at the appropriate time, hence this argument is also repelled. 29. We do not find any merit in the argument that learned DRT does not have power or jurisdiction at the appropriate time, hence this argument is also repelled. 29. Division Bench of High Court of Himachal Pradesh while considering a similar controversy as the one at hand in case of Neelkanth Yam v. Punjab National Bank (supra) held that judicial scmtiny of declaration of account of the petitioners therein as NPA (petitioners therein also claimed to be MSME) was not called for and it is open to learned DRT to go into all these aspects at the relevant time. In case of Neelkanth Yam v. Punjab National Bank (supra), it was held as under: - "27. From the statutory scheme and decisions noted herein-above, it is clear that this Court, in exercise of its jurisdiction, cannot go into the decision of respondent-bank in classifying the petitioner's account as NPA. If the respondent-bank proceeds further and reaches Section 13(4) of the SARFAESI Act stage, the petitioner-firm can file application under Section 17 of the SARFAESI Act. The DRT can go into the aspect of classifying the account as NPA and also whether RBI guidelines have been violated on any aspect leading to declaring the account as NPA and taking recourse under the SARFAESI Act. 28. It has also been repeatedly held that the aspect of classifying an account as NPA is not justiciable in exercise of power of judicial review under Article 226 of the Constitution." 30. We are in agreement with the above view taken by High Court of Himachal Pradesh in above-said case. It is well within jurisdiction of learned DRT to adjudicate upon matters relating to validity or otherwise of proceedings undertaken by Banks/Financial Institutions under SARFAESI Act and examine whether necessary parameters have been observed and adhered to and applicable Rules and Regulations, including RBI circulars have been complied with. Any intervention by Courts at this stage would be against the avowed letter and spirit of SARFAESI Act. Issue as raked up in these writ petitions is necessarily within the realm of consideration by learned DRT, at the appropriate juncture. There cannot be a pre-emptory intervention. It was strenuously argued before us that nonintervention by this Court would lead to extremely harsh consequences for petitioners. Issue as raked up in these writ petitions is necessarily within the realm of consideration by learned DRT, at the appropriate juncture. There cannot be a pre-emptory intervention. It was strenuously argued before us that nonintervention by this Court would lead to extremely harsh consequences for petitioners. However, the same cannot be a ground for interference as there is no escape from the provisions of law even if, harsh - 'Dura lex, sed lex' i.e. the law is harsh but it is the law. 31. It is a settled position that provisions of SARFAESI Act prevail over MSME Act with SARFAESI Act being a complete code in itself. There is no scope for interference in the present matters at this stage. It is open to petitioners to avail the remedy(ies) available to them under the statute in accordance with law and agitate all grievances before learned DRT including the question of incorrect classification or otherwise of their accounts NPA. DRT is well within its jurisdiction to consider this aspect." 6. It is to be noted at this stage that there is no merit in the argument raised by learned counsel for petitioners that as there has been incorrect rejection of objections filed by petitioners by way of a non speaking order/Communication, present writ petition should be entertained. 7. DRT is well within its jurisdiction to consider this aspect." 6. It is to be noted at this stage that there is no merit in the argument raised by learned counsel for petitioners that as there has been incorrect rejection of objections filed by petitioners by way of a non speaking order/Communication, present writ petition should be entertained. 7. Apart from the fact that reply dated 10.02.2024, Annexure P-II (running into 10 pages) dealing with the objections raised by petitioners by way of objections dated 02.02.2024, was duly served upon them, it is relevant to refer to specific provisions of Section 13(3A) of SARFAESI Act, which reads as under:- "(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 fifteen days 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." A bare perusal of proviso to Section 13(3A) of SARFAESI Act, makes it crystal clear that reasons for rejection so communicated or the likely action of secured creditor cannot confer any right upon the borrower to even prefer an application before learned DRT under Section 17 of SARFAESI Act. Therefore, to say that there should be interference by the High Court in exercise of jurisdiction under Article 226 of the Constitution of India would be in complete derogation of the statute in letter and spirit. 8. Therefore, to say that there should be interference by the High Court in exercise of jurisdiction under Article 226 of the Constitution of India would be in complete derogation of the statute in letter and spirit. 8. It is pertinent to note at this stage that Hon'ble Supreme Court in the case of Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311 specifically held that as per the provisions under the Act, the affected persons may not be entitled to challenge the reasons communicated or the likely action of the secured creditor at that point of time unless his right to approach the Debt Recovery Tribunal as provided under Section 17 of the Act matures on any measure having been taken under Section 13(4) of the Act. Furthermore, the contention that prior to any action or measure being taken under Section 13(4) of the Act, there would be no bar to approach civil court, is negated. It was held as under:- "xx xx xx xx xx xx A full reading of section 34 shows that the jurisdiction of the civil court is barred in respect of matters which a Debt Recovery Tribunal or appellate Tribunal is empowered to determine in respect of any action taken "or to be taken in pursuance of any power conferred under this Act". That is to say the prohibition covers even matters which can be taken cognizance of by the Debt Recovery Tribunal though no measure in that direction has so far been taken under subsection (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the civil court shall have no jurisdiction to entertain any proceeding thereof. The bar of civil court thus applies to all such matters which may be taken cognizance of by the Debt Recovery Tribunal, apart from those matters in which measures have already been taken under subsection (4) of Section 13." 9. Reference by learned counsel for petitioners to judgment of Hon'ble the Supreme Court in ITC Limited v. Blue Coast Hotels Limited and others (Supra) is of no avail. Reference by learned counsel for petitioners to judgment of Hon'ble the Supreme Court in ITC Limited v. Blue Coast Hotels Limited and others (Supra) is of no avail. In the said case, the debtor had approached the learned DRT after issuance of notice under Section 13(4) of SARFAESI Act challenging taking over of symbolic possession by creditor. In the meanwhile, sale notices were issued. Interim order was passed by learned DRT directing the creditor to defer acceptance of bids and not to take any further steps for sale of property in question for the next 60 days. Said interim order passed by the DRT was challenged by the creditor before learned DRAT, which directed the appeal to be disposed of within a month by learned DRT. 10. Learned DRT disposed of the matter while setting aside notice under Section 13(2) of SARFAESI Act on the ground of non compliance of Section 13(3A) of SARFAESI Act and issuance of demand notice jointly for the mortgaged land comprising of agricultural land. Appeal filed by the creditor was allowed by learned DRAT with validity of notice under Section 13(2) of SARFAESI Act being upheld. The debtor challenged the same before the High Court, which ultimately led to the filing of SLP before Hon'ble the Supreme Court by the auction purchaser. The High Court had held the entire proceedings for recovery and for sale to be illegal. Learned counsel for petitioners is unable to point out any such finding by Hon'ble the Supreme Court which would entitle petitioners to approach this Court, at this stage for challenging declaration of its account NPA and issuance of notice under Section 13(2) of SARFAESI Act. 11. Keeping in view the facts and circumstances as above, no ground is made out for interference by this Court, at this stage. 12. Writ petition is accordingly dismissed with liberty to petitioners to avail the remedy(ies) available to them in accordance with law at the appropriate stage. It is clarified that there is no expression of opinion on the merits of the matter. Pending application(s), if any, stand(s) disposed of accordingly.