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Case Number

WP No. 2753 of 2005

Attorney(S)

For the Appellant: Siva Reddy, A. Krishnam Raju, Advocates.

Judges

J. Chelameswar
Ghulam Mohammed, JJ.

Acts

RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT 1993
Security Interest Act, 2002 (for short 'the Act').
ARTICLE 226 CONSTITUTION OF INDIA
Sub-section (4) of Section 13
Sub-section (2) of Section 13

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Smart Summary

Judgment Summary — Chelameswar, J.

Factual and Procedural Background

The petition challenges an order in I.A. No. 655 of 2004 in O.A. No. 101 of 2004 on the file of the Debt Recovery Tribunal (Visakhapatnam) dated 9-12-2004. Notice before admission in the writ petition was ordered on 21-2-2005; the respondent bank was served and both parties were heard.

The petitioners had borrowed funds from Union Bank of India for export business (an amount of Rs. 126.65 lakhs is stated in the affidavit). After a default in repayments, the bank instituted proceedings before the Debts Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Certain properties of the petitioners were mortgaged to the bank and the bank sought a decree for sale of the mortgaged property.

The bank also proceeded under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("the Act"). The petitioners had earlier challenged the Act in Writ Petition No. 15459 of 2003 but that petition was ultimately dismissed following the Supreme Court's decision in Mardia Chemicals Ltd. v. Union of India.

The bank issued a demand notice dated 24-6-2003 under Section 13(2) of the Act demanding Rs. 73,63,604.74 (with interest), and a notice dated 29-9-2004 under Section 13(4) proposing to take possession of the mortgaged landed property. The petitioners filed Appeal No. 101 of 2004 before the Tribunal, contending that the land was agricultural and therefore excluded from the Act under Section 31(i). In I.A. No. 655 of 2004 the petitioners sought a stay of operation of the 29-9-2004 notice. The Tribunal granted an interim stay on the condition that the petitioners deposit Rs. 20.00 lakhs into the Tribunal or the bank's loan account by 22-2-2005 (with a default clause), which prompted the present writ petition under Article 226 seeking quashal of the conditional order.

Legal Issues Presented

Whether the Debts Recovery Tribunal acted irrationally or illegally in imposing a condition that the petitioners deposit Rs. 20.00 lakhs as a precondition for maintaining an interim stay against the bank taking possession of the disputed property.
Whether the Tribunal could, while deciding an interlocutory application, impose such a monetary condition when the central question in the appeal is whether the land in dispute is agricultural and therefore excluded from the Act under Section 31(i).
Whether the existence of an alternative statutory remedy (appeal to the Tribunal) precludes the High Court from exercising its jurisdiction under Article 226 in the circumstances of this case.

Arguments of the Parties

Petitioners' Arguments

The condition imposed by the Tribunal (deposit of Rs. 20.00 lakhs) is inconsistent with the rights asserted by the petitioners and amounts to an irrational exercise of the Tribunal's discretion.
Because the petitioners assert that the land is agricultural (and thus excluded from the Act under Section 31(i)), imposing such a condition at the interlocutory stage would effectively negate their right or compel them to part with the property if they cannot comply with the condition.
If the land is ultimately held to be agricultural, the notice under Section 13(4) would be beyond the bank's jurisdiction; compelling a substantial deposit for interim relief is therefore irrational.

Respondent-Bank's Arguments

Although Section 17(2) of the Act (requiring deposit of 75% of the claimed amount to entertain an appeal) was struck down by the Supreme Court, the Tribunal still retains discretion under Section 17(1) to impose appropriate conditions while granting interim relief, and the impugned condition is an exercise of that discretion.
Even if the impugned order is alleged to be illegal, the petitioners have an alternative statutory remedy of appeal against the order; therefore, the High Court should not interfere under Article 226.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Mardia Chemicals Ltd. v. Union of India (Supreme Court)	The Supreme Court upheld Section 13 of the Act but laid down safeguards: a 60-day notice under Section 13(2); secured creditors must consider objections and communicate reasons; after measures under Section 13(4) a borrower may approach the Tribunal under Section 17; the Tribunal may grant interim relief subject to conditions; Section 17(2) requiring 75% deposit is oppressive and invalid. (Reference: para 80 and sub-paragraphs.)	The High Court relied on the principles and safeguards stated by the Supreme Court to evaluate the Tribunal's conditional interim order, observed that Section 17(2) had been struck down (and later obliterated by ordinance), and applied the rationale that onerous monetary conditions cannot be imposed where the central challenge is that the asset is agricultural and excluded under Section 31 of the Act.

Court's Reasoning and Analysis

The Court addressed first the contention about availability of an alternative remedy. It stated the settled principle that the existence of an alternative statutory remedy is not an absolute bar to exercise of jurisdiction under Article 226, but is a relevant consideration. Given that the case principally raises questions about the legality and jurisdiction of the authority initiating action, involves interpretation of relatively recent enactments, and lacks guiding precedents for the statutory Tribunal, the High Court was not inclined to refuse the petitioners access to Article 226. The Court therefore rejected the respondent-bank's submission that availability of an alternative remedy precluded Article 226 relief.

On the main issue of whether the condition of deposit of Rs. 20.00 lakhs was irrational, the Court accepted the petitioners' contention. It reasoned as follows:

Section 13(4)(a) authorises a secured creditor to take possession of secured assets, but Section 31 declares that the Act does not apply to "any security interest created in agricultural land". Therefore the term "secured assets" in Section 13(4)(a) must be read as assets other than agricultural land.
Whether the land is agricultural or not is a factual question to be decided on evidence in the appeal. At the interlocutory stage the Tribunal cannot ignore the debtor's assertion that the land is agricultural and must be cautious in imposing onerous conditions that might negate the debtor's rights.
Imposing a substantial deposit as a precondition for an interim stay places a premium on the petitioners' constitutional right under Article 300-A (right to property) and may effectively deprive persons unable to meet such conditions of the enjoyment of their property — a consequence not intended under the scheme of the Act.
The object of permitting creditors to take possession of assets is to safeguard creditors' interests; however, the same object can be achieved by less burdensome interim measures such as injunctions restraining alienation, creation of encumbrances, or altering the nature of the property, or a combination of these measures, particularly where the central dispute is whether the asset falls within the Act's jurisdiction.

On these bases, the Court concluded that though the Tribunal had discretion to impose conditions, exercising that discretion to require a Rs. 20.00 lakh deposit in the present circumstances was irrational and therefore unlawful.

Holding and Implications

WRIT PETITION ALLOWED — the imposition of the condition requiring deposit of Rs. 20.00 lakhs for obtaining the interim injunction was declared illegal.

Direct consequences and directions given by the Court:

The writ petition is allowed and the condition of depositing Rs. 20.00 lakhs as a precondition for the interim stay granted by the Tribunal is declared illegal.
The petitioners are directed not to alienate the disputed property, create any encumbrance over it, or in any way alter the nature of the property during the pendency of the appeal before the Tribunal, where the question whether the property is agricultural will be decided.
There shall be no order as to costs.

Implications: The decision restrains the Tribunal from imposing an onerous monetary condition in similar circumstances where the central question concerns whether the property is agricultural (and thus outside the Act). The Court also indicated that protective relief for creditors can be fashioned by non-monetary interim measures (e.g., injunctions against alienation or creating encumbrances). The opinion does not purport to set aside the broader principles in the Supreme Court's earlier decision but applies those safeguards to strike down the specific conditional deposit in this case.

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Neel Madhav Mining Pvt. Ltd. And Others v. Authorized Officer, Union Bank Of India, Visakhapatnam And Others

Chelameswar, J.

1. The petitioner filed this writ petition with the prayer as follows:

"For the reasons stated in the accompanying affidavit filed in support of the above Writ Petition the petitioners herein pray that this Hon'ble Court may be pleased to issue a Writ of Certiorari or any other appropriate Writ or Order or Direction in the nature of the writ under Article 226 of the Constitution of India quashing the order passed in I.A. No. 655 of 2004 in O.A. No. 101 of 2004 on the file of Debt Recovery Tribunal, Visakhapatnam, dated 9-12-2004 and pass such other order or orders as this Hon'ble Court may deem fit and proper in the circumstances of the case."

2. Notice before admission was ordered on 21-2-2005. The respondent-bank is served. Heard the learned counsel for the petitioner and the respondent-bank.

3. The petitioners borrowed certain amounts from the Union Bank of India, and the officers of the Bank are shown as respondents 1 and 2 in the writ petition. As per the affidavit filed in support of the writ petition, an amount of Rs. 126.65 lakhs was borrowed in connection with the export business carried on by the petitioners. It appears that there was a default in making the payment of instalments as agreed between the petitioners and the bank, and therefore, the respondent-bank filed a suit before the Tribunal constituted under "The Recovery of Debts Due to Banks and Financial Institutions Act, 1993", which is popularly known as Debts Recovery Tribunal. It appears from the evidence that certain properties belonging to the petitioners are mortgaged with the respondent-bank in connection with the above-mentioned loan transaction. In the above-mentioned suit it appears that the bank has also sought a decree for sale of the mortgaged property.

4. Simultaneously, the respondent-bank also invoked the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'the Act'). Initially the petitioners approached this Court challenging the provisions of the above-mentioned Act by way of Writ Petition No. 15459 of 2003 and obtained an interim order. Eventually, the said writ petition came to be dismissed in view of the decision of the Supreme Court reported in Mardia Chemicals Ltd. v. Union of India, wherein a similar attack on the said Act was repelled by the Supreme Court.

5. The principal challenge before the Supreme Court as well as in the above-mentioned writ petition is with regard to the power vested in the creditor such as the respondent-bank under Section 13 of the Act. The Supreme Court while upholding Section 13 of the Act, however, laid down certain safeguards to be observed while invoking the power under Section 13 of the Act. Para 80 of the judgment of the Supreme Court runs as follows:

"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 abovenoted provisions are for the purpose 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 notices 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 Debts 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 Debts 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) In view of the discussion already held in this behalf, we find that the requirement of deposit of 75% of the amount claimed before entertaining an appeal (petition) under Section 17 of the Act is an oppressive, onerous and arbitrary condition against all the canons of reasonableness. Such a condition is invalid and it is liable to be struck down.

(5) As discussed earlier in this judgment, we find that it will be open to maintain a civil suit in civil court, within the narrow scope and on the limited grounds on which they are permissible, in the matters relating to an English mortgage enforceable without intervention of the court."

6. Further, the Supreme Court struck down Section 17(2) of the Act which required the person, intending to avail the right of appeal created under Section 17(1) of the Act against any decision taken under Section 13(4) of the Act, to deposit 75% of the amount claimed by the creditor. As a matter of fact, it is required to be stated that pursuant to the decision of the Supreme Court, Section 17(2) of the Act itself came to be obliterated from the statute book by an ordinance.

7. The respondent-bank issued a demand notice dated 24-6-2003 as contemplated under Section 13(2) of the Act demanding payment of an amount of Rs. 73,63,604-74 ps. along with interest. The bank further issued a notice dated 29-9-2004 invoking the provisions under Section 13(4) of the Act proposing to take possession of the landed property alleged to have been mortgaged by the petitioners. Aggrieved by the decision of the respondent-bank to proceed under Section 13(4) of the Act against the mortgaged property, the petitioners preferred an appeal being Appeal No. 101 of 2004 before the third respondent, inter alia, contending that the property in dispute is an agricultural land and the same cannot be taken possession of by the bank in exercise of powers under Section 13(4) of the Act, since the agricultural lands are exempted from purview of the Act as provided under Section 31(i) of the Act. Along with the appeal, the petitioners filed an Interlocutory Application being I.A. No. 655 of 2004 seeking stay of the operation of the notice dated 29-9-2004 issued under Section 13(2) of the Act. By the order impugned in the writ petition, the Tribunal granted stay of taking possession of the property in dispute on condition the petitioners deposit an amount of Rs. 20.00 lakhs into the Tribunal or into the loan account of the Bank on or before 22-2-2005 with a default clause. Hence, the present writ petition.

8. The learned Senior Counsel Mr. K. Subramanya Reddy appearing for the petitioners argued that the imposition of a condition like the one imposed by the impugned order would be inconsistent with the right that is asserted by the petitioners and it also tantamounts to irrational exercise of the discretion vested in the Tribunal.

9. The learned senior counsel further argued that while the main issue in the appeal as well as in the Interlocutory Application is the legality and the jurisdiction of the respondent-bank to take possession of the land in dispute, and on the face of the assertion of the petitioners that the land in dispute is agricultural land, the imposition of a condition such as the one imposed in the impugned order would virtually negate the right of the petitioners or would compel the petitioners to part with the possession of the property in the event of their inability to comply with the conditions stipulated therein.

10. The learned senior counsel also submitted that if the land in dispute is eventually established that it is an agricultural land, the notice under Section 13(4) of the Act, referred to earlier, would be clearly beyond the jurisdiction of the respondent-bank and for a determination of such a question, if the petitioners are compelled to deposit a substantial amount, such a condition would be an irrational exercise of the discretion vested in the Tribunal while granting interim stay.

11. The learned counsel Mr. A. Krishnam Raju appearing for the respondent-bank argued that though the Supreme Court struck down Section 17(2) of the Act, it recognised that the Debts Recovery Tribunal in exercise of jurisdiction under Section 17(1) of the Act, would still have the discretion to impose such conditions as are deemed fit and proper while granting an interim order and the condition stipulated in the order impugned in the present writ petition is such a condition imposed, in exercise of such discretionary power vested in the Debts Recovery Tribunal.

12. The learned counsel also argued that even assuming that the impugned order is illegal for any reason, the petitioners have a statutory remedy of appeal available against the impugned order, and therefore, the interference of this Court in exercise of its extraordinary jurisdiction under Article 226 of the Constitution is not warranted.

13. The argument of the learned counsel for the respondent-bank as to the availability of an alternative remedy of statutory appeal is required to be dealt with first.

14. It is a settled principle of law that the existence of an alternative remedy is not a bar for exercise of jurisdiction under Article 226 of the Constitution of India, but it is only one of the relevant considerations, which should guide the court while exercising jurisdiction under Article 226 of the Constitution. In a case like the one before us, where the question is principally about the legality and the jurisdiction of the authority, which initiated action against the petitioners, this Court would not normally be reluctant to deny the access to the petitioners to invoke jurisdiction under Article 226 of the Constitution, more particularly where the interpretation of the enactments, which are of recent origin, is involved, and where the precedents are lacking to guide the statutory Tribunal constituted under the Act. We, therefore, reject the submission of the learned counsel for the respondent-bank based on the availability of alternative remedy.

15. Coming to the main question-whether the condition such as the one imposed by the impugned order is irrational one, we accept the submission made by the learned senior counsel for the petitioners. The principal question in the appeal before the Debts Recovery Tribunal, which incidentally is also relevant for the purpose of deciding the interlocutory application as to whether the action of the respondent-bank in invoking Section 13(4) of the Act and proposing to take possession of the land in dispute is legal and within the jurisdiction of the bank? No doubt, Section 13(4)(a) of the Act authorises the creditor such as the respondent-bank to take possession of the secured assets of the borrowers. But by virtue of the declaration made under Section 31 of the Act, the provisions of the Act do not apply to 'any security interest created in agricultural land'. Therefore, the expression 'secured assets' occurring under Section 13(4)(a) of the Act must necessarily be interpreted as an asset other than agricultural land. The question, of course, whether the land in question is an agricultural land or not, requires to be decided on the basis of appropriate evidence to be led in the appeal. But, at the stage of considering the interlocutory applications, the Tribunal, while deciding the question whether the creditor can be permitted to take possession of agricultural land or not, cannot totally ignore the plea of the debtor that the land is an agricultural land and impose a condition such as the one imposed in the impugned order. In our view, such a condition tantamounts to placing a premium on the constitutional right of the petitioners under Article 300-A of the Constitution. Any person, who is not in a position to comply with such an onerous condition would, in effect, be deprived of his right to the enjoyment of the property i.e., agricultural land, a consequence which is not intended under the Scheme of the Act. In the circumstances, we are of the opinion that the order under appeal insofar as it granted interim stay of taking of possession of the property in dispute on condition the petitioners deposit an amount of Rs. 20.00 lakhs, is an order passed in exercise of the discretion, no doubt, vested in the Tribunal, but we must conclude that such a discretion was exercised irrationally.

16. The object of authorising the creditors to take possession of the assets of the debtors appears to be to safeguard the interests of the creditors in the event of successful culmination of the proceedings under the Act or under the proceedings before the Debts Recovery Tribunal. The object could still be achieved by injuncting the petitioners from alienating the property in dispute or from creating any encumbrance in the property or altering its nature or by ordering both particularly when the dispute is whether the asset is amenable to the jurisdiction under Section 13(4) of the Act or not.

17. We therefore, allow the writ petition and declare that the imposition of condition of depositing Rs. 20.00 lakhs for availing the injunction granted by the Tribunal is illegal. However, we direct the petitioners not to alienate or create any encumbrance or in any way alter the nature of the property during the pendency of the appeal, wherein the question whether the property in dispute is agricultural land or not, would be decided by the Tribunal. In the circumstances, there shall be no order as to costs.

Neel Madhav Mining P... v. Authorized Officer, ...