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Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition
Attorney(S)
Judges
Acts
  • Section 13(3-A) of the Sarfaesi Act
  • Section 13(2) of the Sarfaesi Act
  • Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Sarfaesi Act)
  • Section 13(4) of the Sarfaesi Act
  • Section 5, Subsection 2 of the 1983 Income Tax Act
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition
Attorney(S)
Judges
Acts
  • Section 13(3-A) of the Sarfaesi Act
  • Section 13(2) of the Sarfaesi Act
  • Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Sarfaesi Act)
  • Section 13(4) of the Sarfaesi Act
  • Section 5, Subsection 2 of the 1983 Income Tax Act
Smart Summary

Factual and Procedural Background

Petitioner 1, Devi Ispat, manufactures and trades in iron and steel products. It enjoyed credit facilities from the State Bank of India (SBI) that grew from an initial limit of Rs 29.5 crores to Rs 68.5 crores. A further request to increase the facility to Rs 93 crores was not sanctioned.

On 10-01-2013 SBI informed Devi Ispat that its cash-credit account was irregular—outstanding at about Rs 11.7 crores against a permissible limit of Rs 5.6 crores—and warned that the account was about to turn into a non-performing asset (NPA). Follow-up letters dated 14-01-2013 and 18-01-2013 culminated in SBI classifying the account as an NPA on 16-01-2013 and issuing a demand notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act).

Devi Ispat challenged the Bank’s actions through W.P. No. 274 of 2013 before a Single Judge of the Calcutta High Court. The writ was dismissed on 19-03-2013 because Section 13(3-A) of the Sarfaesi Act provided an alternative statutory remedy. Devi Ispat then:

  • Submitted a representation to SBI under Section 13(3-A) on 22-03-2013 (rejected on 02-04-2013); and
  • Filed an intra-court appeal (APOT No. 172 of 2013), which was dismissed on 26-04-2013 for the same reason.

SBI subsequently took possession of the secured assets on 25-05-2013 and 27-05-2013 under Section 13(4) of the Act. Devi Ispat approached the Supreme Court, leading to the present decision.

Legal Issues Presented

  1. Whether the writ petition challenging SBI’s declaration of the account as an NPA and the Section 13(2) notice was maintainable despite the alternative remedy prescribed in Section 13(3-A) of the Sarfaesi Act.
  2. Whether any ground survived for judicial interference after the borrower had invoked, and been rejected under, the statutory mechanism.

Arguments of the Parties

Petitioners (Devi Ispat)

  • Contended that they had no effective alternative but to invoke the writ jurisdiction against the Bank’s notice dated 18-01-2013.

Respondent (State Bank of India)

  • Pointed out that the borrower had an explicit statutory remedy under Section 13(3-A) and had actually exercised it.
  • Informed the Court that possession of the secured assets had already been taken on 25-05-2013 and 27-05-2013, and notice published on 31-05-2013.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311; AIR 2004 SC 2371 Recognises that borrowers can raise objections to a Section 13(2) notice under the statutory scheme and that courts should ordinarily not entertain writ petitions when such alternative remedy exists. Relied upon to affirm that the High Court correctly refused to entertain the writ petition and directed the borrower to use the statutory mechanism under Section 13(3-A).

Court's Reasoning and Analysis

The Court adopted a three-pronged rationale:

  1. Existence of Adequate Statutory Remedy: Section 13(3-A) expressly allows a borrower to object to a Section 13(2) notice. In light of the principle reiterated in Mardia Chemicals, the petitioners should first exhaust this remedy.
  2. Actual Availment of the Remedy: Devi Ispat in fact submitted a representation on 22-03-2013, which SBI rejected on 02-04-2013. Having invoked the statutory procedure, the dispute’s core grievances had already been addressed within that framework.
  3. Subsequent Possession of Assets: SBI had exercised its powers under Section 13(4) and taken possession of the secured assets. This factual development further reduced the scope for relief in writ jurisdiction.

Given these considerations, the Court concluded that no ground remained to interfere with the High Court’s orders.

Holding and Implications

Petition Dismissed.

The Supreme Court upheld the Calcutta High Court’s dismissal of both the writ petition and the intra-court appeal. The direct effect is that SBI’s classification of the account as an NPA and its enforcement actions remain undisturbed. The Court left Devi Ispat free to pursue any other remedies that may still be available under law. No new legal precedent was created beyond reaffirming the need to exhaust statutory remedies before invoking writ jurisdiction.

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    Devi Ispat Limited And Another v. State Bank Of India And Others

    Madan B. Lokur, J.— Petitioner 1 (Devi Ispat) is engaged in the manufacture and trade of iron and steel products while Petitioner 2 is one of its Directors. Devi Ispat had availed of credit facilities from State Bank of India with an overall limit of Rs 29.5 crores. This credit facility was enhanced from time to time to Rs 68.5 crores and Devi Ispat sought a further enhancement to Rs 93 crores but that was not sanctioned.

    2. While the Bank was processing the request of Devi Ispat, it issued a letter to it on 10-1-2013 informing that its cash credit account is irregular inasmuch as the outstanding was about Rs 11.7 crores against the permissible limit of Rs 5.6 crores. Devi Ispat was also informed that it was not servicing the interest of cash credit, foreign currency non-resident bank account, etc. It was also informed that its account was heading for becoming a non-performing asset (NPA) and Devi Ispat was requested to regularise all its accounts by 14-1-2013, failing which there would be no alternative but to call up the advance.

    3. Devi Ispat replied to the above letter but since the response was not satisfactory another letter was issued by the Bank on 14-1-2013 calling upon Devi Ispat to regularise its accounts position failing which the Bank would be constrained to take appropriate action. Since there was again no positive response from Devi Ispat, the Bank issued a letter on 18-1-2013 intimating Devi Ispat that its account had been classified as an NPA on 16-1-2013 and it was requested to regularise the accounts position within seven days.

    4. Instead of regularising its accounts, Devi Ispat sent a reply on 22-1-2013 pointing out that the cash credit account had been operated on 19-10-2012 and therefore its declaration as an NPA on 16-1-2013 (that is, on the 90th day instead of on completion of 90 days) was in violation of the guidelines issued by Reserve Bank of India. The Bank then issued a notice to Devi Ispat under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Sarfaesi Act) on 28-1-2013 demanding payment of the outstanding liabilities due to the extent of about Rs 17.9 crores, $1.11 crores (of the FCNB account) and interest.

    5. Devi Ispat reacted by filing a writ petition in the Calcutta High Court challenging, inter alia, the declaration of its being an NPA and for setting aside the previous letters issued by the Bank. The learned Single Judge hearing the writ petition dismissed it by an order dated 19-3-2013 WP No. 274 of 2013 on the sole ground that Devi Ispat had an alternate statutory remedy under Section 13(3-A) of the Sarfaesi Act to make a representation against the letter issued under Section 13(2) thereof.

    6. Section 13(3-A) of the Sarfaesi Act reads as follows:

    “13. Enforcement of security interest.—(1)-(3)***
    (3-A) 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 17-A.”

    7. After the dismissal of its writ petition, Devi Ispat made a representation to the Bank under Section 13(3-A) of the Act on 22-3-2013. This was followed almost immediately thereafter by an intra-court appeal filed against the order of the learned Single Judge. Although the appeal was filed on 1-4-2013 (and we have gone through the contents of the appeal memo) there is no mention of Devi Ispat having made a representation to the Bank under Section 13(3-A) of the Act. Be that as it may, the representation was considered by the Bank and rejected on 2-4-2013. The Division Bench was informed of this during the hearing of the intra-court appeal on 26-4-2013 APOT No. 172 of 2013.

    8. The Division Bench was of the opinion that in view of the observations by this Court in Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC 311, AIR 2004 SC 2371 as well as the provisions of Section 13(3-A) of the Sarfaesi Act, the writ court was right in not entertaining the writ petition and permitting the issues raised by Devi Ispat to be considered by the Bank through the statutory mechanism. While upholding the view of the learned Single Judge and despite the fact that the representation made by Devi Ispat had been rejected on 2-4-2013, the Division Bench heard the matter on merits. However, it did not deal with the merits of the case since Devi Ispat had availed of the statutory remedy available to it. Accordingly, the appeal filed by Devi Ispat was dismissed on 26-4-2013 APOT No. 172 of 2013.

    9. While challenging the order dated 26-4-2013 APOT No. 172 of 2013 passed by the Division Bench, the learned counsel submitted that Devi Ispat had no alternative but to file a writ petition challenging the notice issued by the Bank on 18-1-2013. We find no merit in this contention:

    9.1 Firstly, Devi Ispat had an alternate remedy to make a representation to the Bank under the provisions of Section 13(3-A) of the Act and there was no reason to by-pass the statutory mechanism.

    9.2 Secondly, Devi Ispat did in fact make a representation to the Bank under Section 13(3-A) of the Sarfaesi Act and that representation was rejected on 2-4-2013 during the pendency of the intra-court appeal. The statutory remedy having been availed of by Devi Ispat, nothing really survived in the dispute raised.

    9.3 Thirdly, we now find from the written submissions submitted by the Bank that it has taken possession of the secured assets of Devi Ispat on 25-5-2013 and 27-5-2013 under the provisions of Section 13(4) of the Sarfaesi Act and a possession notice was also published in the newspapers on 31-5-2013.

    10. On the facts on record and the statutory remedy having been availed of, we see no reason to interfere with the impugned order APOT No. 172 of 2013 passed by the Calcutta High Court. However, it is left open to Devi Ispat to take such appropriate steps as may be considered necessary for safeguarding its interests.

    11. There is no merit in this petition and it is accordingly dismissed.

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    Devi Ispat Limited And Another v. State Bank Of India And Others
    (Apr 16, 2014)