(Judgment of the Court was delivered by The Hon'ble The Chief Justice)
Admit. Learned counsel appearing for the respondent
waives service. By consent, the appeal is taken up for
hearing.
2. This appeal is directed against the judgment and
order of the learned single Judge dated 8.9.2006 in Writ
Petition No.11009 of 2006.
3. The brief facts leading to the appeal are as
follows:-
The appellant-IDBI had sanctioned financial
assistance aggregating Rs.400 lakhs (since reduced to Rs.394
lakhs) to the respondent for setting up a new unit for
manufacture of texturised and draw twisted polyester
filament yarn with an installed capacity of 600 tpa, in
Uruvaiyaru, Villianur Panchayat in Puducherry and for the
said purpose, the respondent had executed loan and security
documents. As the respondent defaulted in repayment of the
principal amount of the loan and in payment of interest and
other charges in terms of the relevant loan agreements
entered into with the appellant, the appellant filed
recovery application against the respondent and others
before DRT, Chennai, being O.A.No.960 of 1998 for a claim
amount of Rs.6,67,56,908/= as on 31.3.98 together with
further interest and other charges at agreed rates till
realisation. In view of the promulgation of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (for short,
"SARFAESI Act"), whose prime object was to enable the
banking community to speed up the NPA recoveries, the
appellant decided to take recourse to the provisions of the
SARFAESI Act. Accordingly, the appellant issued the
requisite notice under Section 13(2) of the SARFAESI Act on
20.12.2005. This notice was replied by the respondent,
which was also responded to by the appellant in accordance
with the provisions of Section 13(3-A) of the SARFAESI Act.
After verification of compliance of the provisions of
Section 13(9) of the SARFAESI Act, the Authorised Officer of
IDBI Ltd., took possession of the secured assets on February
20, 2006 in terms of Section 13(4) of the SARFAESI Act.
4. The legality and validity of notices issued by the
appellant-Bank under the SARFAESI is questioned in the
present writ petition mainly on the ground that without
withdrawing the O.A. filed by the appellant before the DRT,
invoking of the provisions of Section 13 of the SARFAESI Act
is not permissible, in view of the Division Bench decision
of this Court in Digivision Electronics Ltd., v. Indian Bank
(2005 (3) CTC 513). Learned single Judge, following the
dicta in the Digivision Electronics Ltd., v. Indian Bank,
has held that the notices issued under Section 13(2) and
Section 13(4) of the SARFAESI Act are contrary to Section
19(1) of the SARFAESI Act and are illegal and without
jurisdiction.
5. We have heard Mr.N.V.Srinivasan, learned counsel
appearing for the appellants and Ms.J.Anandhavalli learned
counsel appearing for the respondents. In our opinion, the
Division Bench decision of this Court in Digvision
Electronics Ltd., v. Indian Bank (cited supra) is no longer
a good law, in view of the decision of the Suprmeme Court in
Transcore v.Union of India, (2006) 5 CTC 753. In Transcore's
case, the Supreme Court has clearly held that the withdrawal
of O.A pending before the DRT is not a pre-condition for
taking recourse to the SARFAESI Act. It is for the
bank/financial institition to exercise its discretion as to
cases in which it may apply for leave and in cases where it
may not apply for leave to withdraw. Therefore, in the light
of the decision in Transcore's case, the appellant is
entitled to proceed in accordance with the provisions of the
SARFAESI Act without withdrawal of the O.A pending before
the DRT.
6. Ms.J.Anandhavalli, learned counsel appearing for the
respondent, however, submitted that there has been total
non-compliance of Section 13(3-A) of the SARFAESI Act and,
therefore, the entire proceedings are vitiated. Learned
counsel submitted that in response to the notice dated
20.12.2005 issued under Section 13(2), a reply letter dated
16.2.2006 was sent by the respondent raising objections to
the said notice. The reasons for non-acceptance of the
objections raised were communicated by the appellant-bank
only by letter dated February 22, 2006. However, before
even communicating the reasons, the appellant-bank issued
the possession notice on February 20, 2006. According to the
learned counsel, the notice for possession under Section
13(4) of the SARFAESI Act could be issued by the bank only
after the reasons for non-acceptance of the objections were
communicated by the appellant-bank to the respondent-
borrower and therefore, notice under Section 13(4) is
illegal and valid.
7. We are unable to accept the submission of the
learned counsel for the respondent. Section 13(3-A) of the
SARFAESI Act, which was incorporated by the Amendment Act 30
of 2004, provides that if, on receipt of the notice under
sub-section (2), the borrower makes any representation or
raises any objection, the secured creditor must 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. This provision
is obviously incorporated in the light of the decision of
the Supreme Court in Mardia Chemicals Ltd., v. Union of
India (2004 (4) SCC 311).
8. In Mardia Chemicals case, the Supreme Court held
that under Section 13(2) of the SARFAESI Act, it is
incumbent upon the secured creditor to serve sixty days
notice before proceeding to take action under sub-section
(4) of Section 13 of the SARFAESI 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 that may be, must be communicated to the borrower. 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 DRT under Section 17 of
the SARFAESI Act, at that stage. The Court explained that
communication of reasons not to accept the objections of the
borrower is for the purpose of his knowledge which would be
a step forward towards his right to know as to why his
objections have not been accepted by the secured creditor,
who intends to resort to harsh steps of taking over the
management/business of namely, the secured assets without
intervention of the Court. Such person in respect of whom
steps under Section 13(4) of the SARFAESI Act are likely to
be taken cannot be denied the right to know the reason for
non-acceptance of his objections. This will be in keeping
with the concept of right to know and lender's liability of
fairness to keep the borrower informed particularly of the
developments immediately before taking measures under sub-
section (4) of Section 13 of the SARFAESI Act. The Court,
however, made it clear that as per the provisions of the
SARFAESI Act, the borrower will not be entitled to challenge
the reasons communicated or the likely action of the secured
creditor at the stage of communication of reasons, unless
his right to approach the DRT as provided under Section 17
of the SARFAESI Act matures on any measure having been taken
under sub-section (4) of Section 13 of the SARFAESI Act.
9. The proviso to sub-section (3-A) of Section 13 of
the SARFAESI Act makes it abundantly clear 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
DRT under Section 17 or the Court of District Judge under
Section 17-A of the Act. Thus, the basic object of sub-
section (3-A) of Section 13 of the SARFAESI Act is to ensure
the element of transparency and fair play in the
implementation of the provisions of the SARFAESI Act.
Learned counsel for the respondent is unable to demonstrate
prejudice or loss that is likely to be caused to the
respondent by reason of the possession notice given to it,
earlier to the communication of the reasons for non-
acceptance of the objections raised by the borrower. In our
opinion, at the most, it would amount to a mere irregularity
and having regard to the facts and circumstances of the
case, we are satisfied that the appellant-bank has
substantially complied with the provisions of Section 13(3-
A) of the SARFAESI Act.
10. In the result, for the foregoing reasons, the
appeal is allowed. The order of the learned single Judge is
set aside and the writ petition stands dismissed. This is
without prejudice to the rights of the borrower to approach
the DRT under section 17 of the sarfaesi act, if so advised.
If the appeal under section 17 of the sarfaesi act is
preferred by the respondent within a period of four weeks,
the DRT shall decide the appeal on its own merits without
raising the issue of limitation. Consequently, M.P.No.1 of
2006 is closed. No costs.
ss/pv
To
The Deputy General Manager
and Authorised Officer
Industrial Development
Bank of India Limited
115, Anna Salai
Saidapet
Chennai 600 015