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Case Number

M.A.T No. 97 of 2009 With, C.A.N 1426 of 2009, C.A.N 3180 of 2009 And, M.A.T No. 2919 of 2006, C.A.N 9417 of 2006

Attorney(S)

Mr. Asoke Kumar Banerjee,
Mr. Jaharlal Roy.
For the Respondent No. 1:
Mr. A.K Routh,
Mr. S. Dasgupta,
Mr. Sudeep Pal Chowdhury.
For the Respondent No. 2:
Mr. Tarakeshwar Pal.
For the Added Party:
Mr. D.K Mondal, Mr. Alok Bera.

Judges

Bhaskar Bhattacharya
Tapan Kumar Dutt, JJ.

Acts

SECTION 13 SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT 2002
ARTICLE 226 CONSTITUTION OF INDIA
ARTICLE 12 CONSTITUTION OF INDIA
Section 13 of the SARFAESI Act, 2002,
Section 13(4) of the SARFAESI Act.

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Smart Summary

Judgment Summary (Bhaskar Bhattacharya, J.; Tapan Kumar Dutt, J. concurring)

Factual and Procedural Background

The two consolidated appeals arise from a single judgment dated 12 February 2009 by a Single Judge disposing of two writ petitions: W.P. No. 556 (W) of 2007 (filed by the borrowers/appellants) and W.P. No. 30868 (W) of 2008 (filed by Union Bank of India). The borrowers (appellants) had taken a loan from Union Bank of India, secured by movable and immovable property including Premises Nos. 244 and 266/4, Netaji Subhash Chandra Bose Road. The Bank issued notices under Section 13 of the SARFAESI Act and published auction/notice information in December 2006 and earlier.

The borrowers contended that they had paid a major part of the loan and that the Bank's claimed dues were exaggerated and that payments already made had not been adjusted. A developer (respondent No. 2) who constructed a building on one of the premised challenged the notice in a separate writ petition (W.P. No. 21820 (W) of 2005). A Division Bench of this Court granted an ad interim injunction on 3 August 2006 subject to deposit of postdated cheques and further payment obligations.

The Single Judge dismissed the borrowers' writ petition largely on the ground that an efficacious alternative remedy under Section 17 of the SARFAESI Act existed and because the borrowers had not paid the entire outstanding sum; costs of Rs. 50,000 were directed to be paid to the auction-purchaser. The Bank's writ petition sought protection from alleged harassment and to prevent steps being taken pursuant to a criminal complaint concerning non-execution of a sale certificate.

The appellants appealed from the Single Judge's order. On appeal to the Division Bench, the Court raised concerns about an apparent overstatement of the Bank's demand, directed supplementary affidavits and ultimately appointed a Chartered Accountant as a Special Officer to verify the Bank's claimed dues after adjustment of payments.

Legal Issues Presented

Whether a writ court should entertain a petition challenging a notice under Section 13 of the SARFAESI Act when an efficacious alternative remedy under Section 17 of the SARFAESI Act is available, and whether that general rule yields where affidavits have been exchanged and final hearing is reached.
Whether a notice issued under Section 13(4) of the SARFAESI Act based on an exaggerated or inflated claim of dues is invalid and the consequent sale and other steps taken by the Bank can be set aside.
What relief should follow (if any) where the Bank's stated dues are shown to be materially overstated — specifically, whether the notice, sale and consequent steps should be set aside, and upon what terms.
Whether this Court should pass directions concerning pending criminal proceedings against Bank officials arising from a complaint relating to non-execution of a sale certificate.

Arguments of the Parties

Appellants' Arguments

The appellants argued that they had paid a major part of the loan and that the Bank's notices and steps under Section 13 of the SARFAESI Act were issued despite failure to adjust amounts already paid on their behalf.
They contended that the Bank's claimed outstanding amounted to an exaggerated figure and that they were threatened with possession and sale even though the real dues were substantially lower.
The appellants relied upon the contention that had the Bank disclosed the real amount due, they might have paid it and there would have been no occasion for issuing a Section 13 notice or conducting an auction.

Bank's Arguments

The Bank maintained that amounts were due and relied on its notices under Section 13 of the SARFAESI Act and consequent steps, including auction and sale processes.
By the time of the Special Officer's report, the Bank's counsel (Mr. Routh) fairly submitted that the Bank did not dispute the Special Officer's calculation of the actual dues (Rs. 2,07,526.94 as on 31 May 2009).
The Bank sought a direction for payment of interest for the last one year on the assessed amount, a request the Court rejected.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Court proceeded in several analytical steps, applying the following reasoning strictly based on the material in the opinion:

On the general principle: the Court acknowledged the settled position of law that where an efficacious alternative remedy under Section 17 of the SARFAESI Act exists, a writ court should generally not entertain a challenge to a Section 13 notice. The Single Judge relied on that principle when dismissing the writ petition.
On the exception to the general principle: the Court identified a well-recognized qualification — when the parties have been ordered to file affidavits and have actually exchanged affidavits so that the factual matrix is before the court, dismissal merely on the ground of alternative remedy is not justified at the final hearing. The Division Bench found the Single Judge accepted this legal position in principle but nevertheless dismissed the petition for the reason that the appellants had not paid the entire loan amount.
On the duty of disclosure by the Bank: the Court emphasised that in issuing a Section 13 notice the Bank must disclose the real amount due and payable. If a Bank issues a notice based on an inflated claim and that inflation is prima facie established, the writ court should not dismiss the petition simply because the entire loan has not been paid; rather the court should direct the Bank to demand the correct amount.
On the facts: the Court observed inconsistent statements and allegations regarding the amounts due, and therefore directed verification. A Chartered Accountant was appointed as a Special Officer to verify the Bank's claim after adjustment of all payments made on behalf of the appellants.
On the Special Officer's report and admissions: the Special Officer reported that the actual amount due for full satisfaction of the Bank's dues as on 31 May 2009 was Rs. 2,07,526.94, whereas the Bank had been insisting on payment of more than Rs. 9 lakh. The Bank's counsel expressly did not dispute the Special Officer's report, and counsel for the appellants accepted it as well.
On the appropriate relief: having established that the Section 13 notice was issued on an overstated claim, the Court concluded that the Bank illegally proceeded to sell the mortgaged property. The Court therefore set aside the notice and all consequent steps taken by the Bank, but on condition that the appellants pay the amount found due by the Special Officer (Rs. 2,07,526.94) by the end of May 2010; failure to make that payment would result in dismissal of the appeal.
On interest and costs: the Bank had prayed for interest for the last one year; the Court rejected that prayer because of the harassment caused to the appellants by the Bank's exaggerated claim. Although the Single Judge had previously awarded costs of Rs. 50,000 against the appellants, the Division Bench noted that was inconsistent with the fact that the real dues were much less than the amounts earlier demanded. Consequently, the Court ordered that no interest would be payable by the appellants on the Rs. 2,07,526.94 for one year (as a measure equivalent to costs), and did not impose any separate additional costs.
On criminal proceedings and other observations: the Court declined to make any direction or observations touching upon the merits of the pending criminal proceedings; it stated that if any offence is established, the criminal law will take its course. Because the Section 13 notice and sale were set aside, the Court also set aside the Single Judge's direction for expeditious sale in favour of the auction-purchaser.
On further consequences: the Bank was directed to release all securities on payment of the Rs. 2,07,526.94 to the borrowers or guarantors as the case may be. The Court expressly refrained from adjudicating any future disputes as to the extent of liability between the borrowers and their developer — such disputes must be agitated in appropriate forums in accordance with law.

Holding and Implications

APPEALS ALLOWED IN PART.

Direct holdings and practical consequences (as stated in the opinion):

The notice issued by the Bank under Section 13 of the SARFAESI Act and all consequent steps taken by the Bank (including sale/auction steps) are set aside on the condition that the appellants pay Rs. 2,07,526.94 (the amount found due by the Special Officer as on 31 May 2009) by the end of May 2010.
If the appellants fail to make that payment within the prescribed period, the appeal will stand dismissed.
No interest will be payable by the appellants on the sum of Rs. 2,07,526.94 for one year (this functions as a measure addressing the harassment and cost of litigation caused by the Bank's exaggerated claim).
The Bank is directed to release all securities on payment of the aforesaid amount to the concerned borrowers or guarantors, as applicable.
The Court made no direction in relation to the pending criminal proceedings and did not comment on their merits; any criminal liability must be adjudicated by the criminal court in due course.
The Court did not decide or express any view on disputes between the borrowers and their developer concerning liability arising out of their transactions; such disputes should be raised in appropriate proceedings.
No new broad precedent was declared beyond applying settled principles concerning the availability of alternative remedies under Section 17, the exception when affidavits and factual material have been exchanged, and the duty of a bank to disclose the true dues before taking coercive steps under Section 13(4) of the SARFAESI Act.

Note: This summary is based exclusively on the content of the provided opinion and does not add information or infer facts beyond what the Court expressly recorded.

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Pradip Kumar Das & Ors. v. Asstt. General Manager, Union Bank & Anr.

Bhaskar Bhattacharya, J.:— These two appeals were heard together as these have been preferred against a common judgment dated 12th February, 2009 passed by a learned Single Judge of this Court by which His Lordship disposed of the two writ-applications being W.P No. 30868 (W) of 2008 and W.P No. 556 (W) of 2007.

The appellants before us filed a writ-application under Article 226 of the Constitution of India being W.P No. 556 (W) of 2007 thereby challenging the notice of auction dated 27 September, 2006 issued by the Assistant General Manager, Union Bank of India, Overseas Branch, under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act) as well as the notification dated 14 December, 2006 published in the Bengali newspaper “Aajkal” and earlier notice dated 12 July, 2006 issued by the Assistant General Manager of the Bank.

The case made out by the writ-petitioners may be summed up thus:

(a) The writ-petitioners took loan from the Respondent-Bank by mortgaging moveable and immovable properties including Premises Nos. 244 and 266/4, Netaji Subhash Chandra Bose Road. In spite of fact that the petitioners made payment of major part of the loan taken, the Bank issued notice under the SARFAESI Act and such notice was challenged by the respondent No. 2 of the writ-application, namely, the developer appointed by the writ-petitioners, who constructed a new building on Premises No. 244, NSC Bose Road.

(b) The writ-petitioners having failed to pay back the total amount of Rs. 33 lakh, the Bank threatened the developer as well as the writ-petitioner to take possession of the property for realization of the loan amount. The developer moved a writ-application being W.P No. 21820 (W) of 2005 challenging the notice issued by the Bank under Section 13 of the SARFAESI Act. In the said writ-application, the writ-petitioners were also made parties. Although the learned Single Judge did not pass any interim order, on an appeal, a Division Bench of this Court on 3rd August, 2006 passed an ad interim order of injunction in favour of the appellants therein as the appellants deposited three postdated cheques amounting to Rs. 29,40,000/- and the writ-petitioners were directed to pay further amount of Rs. 3,60,000/-.

(c) As the Appellate Court had given liberty to the Bank to realize further dues from the writ-petitioners, the Bank issued another notice to the writ-petitioners for taking possession of Premise No. 266/4, NSC Bose Road for realization of the remaining part of the due amount. According to the writ-petitioners, the amount claimed by the Bank to be due was an exaggerated amount and the amounts already paid on behalf of the writ-petitioners were not adjusted. Hence the writ-application.

So far the other writ-application being W.P No. 30868 (W) of 2008 was concerned, the same was filed by the Union Bank of India against the State of West Bengal and the prayer of the Bank was for restraining the respondents from

harassing the officials of the Bank and for a direction not to take any further step on the basis of complaint lodged by the respondent No. 5 therein alleging non-execution of sale certificate in favour of the said respondent No. 5 for purchase of Premise No. 266/4 NSC Bose Road.

Both the writ-applications were heard together and the learned Single Judge by the order impugned in these two appeals disposed of those applications by holding that the writ-application filed by the appellants being W.P No. 556 (W) of 2007 was liable to be dismissed as a Writ-Court should not generally entertain a petition when there is efficacious alternative remedy available and particularly, when it was found that the writ-petitioners even after obtaining an order of injunction did not make full payment of the amount due and payable to the Bank. His Lordship further directed the appellants to pay costs of Rs. 50,000/- to the auction-purchaser who made payment although he did not get any property.

So far the other writ-application filed by the Bank is concerned being W.P No. 30868 (W) of 2008, according to His Lordship, the other writ-petition filed by the appellant having been dismissed, there would be no impediment for the Bank to take expeditious step to complete the transaction with the auction-purchaser and the Bank was given liberty to apply before the appropriate forum in respect of criminal complaint lodged against it for due discharge in accordance with law.

Being dissatisfied, the appellants have preferred the present two appeals.

After hearing the learned counsel for the parties and after going through the materials on record, this Court although found that the entire loan amount had not been paid off, yet, had some doubt in its mind as to the overstated demand of the Bank.

This Court is quite conscious of the position of law that generally there being efficacious alternative remedy by way of Section 17 of the SARFAESI Act available to the aggrieved party, a writ-application challenging a notice under Section 13 thereof should not be entertained; but law is equally settled that once direction for affidavit has been given and the parties have exchanged affidavits, there was no justification of dismissing the writ-application on the ground of efficacious alternative remedy at the time of final hearing. The learned Single Judge, as it appears from the order impugned, also accepted such position of law but dismissed the writ-application filed by the appellants with costs of Rs. 50,000/- for the simple reason that the entire amount had not been paid.

In our opinion, in order to give a notice under Section 13 of the SARFAESI Act, 2002, it was the duty of the Bank to disclose the real amount of due payable by the person who has taken loan. If a Bank based on an inflated claim gives notice and such fact is, prima facie, established, the Writ-Court should not dismiss the writ-application simply on the ground that the entire loan amount had not been paid but should direct the Bank to demand the exact amount payable.

Therefore, in the case before us, the learned Single Judge, on mere finding that the entire amount of loan was not paid, should not have dismissed the writ-application when the claim of the Bank is also an overblown one.

In view of the allegations and counter-allegations made in this proceeding regarding the actual amount of dues payable, this Court from time to time directed the parties to affirm various supplementary affidavits because inconsistent statements were made by the Bank at different times. Ultimately, this Court appointed a Chartered Accountant as a Special Officer for verifying the claim of the Bank after adjustment of all the payments made on behalf of the appellants.

On the basis of such order, the Special Officer has given report before us stating that a sum of Rs. 2,07,526.94p. is due and payable by the appellants for full satisfaction of the dues payable to the Bank as on 31st May, 2009 whereas it appeared that the Bank was insisting on payment of more than Rs. 9 lakh.

Mr. Routh, the learned advocate appearing on behalf of the Bank, has fairly submitted before us that his client does not dispute the report given by the Special Officer assessing the actual dues payable by the appellants. Mr. Banerjee, the learned Senior Advocate appearing on behalf of the appellants, has also accepted the report of the Special Officer.

Such being the position, it has now been established that the amount really disclosed in the notice under Section 13 of the SARFAESI Act to be due and payable by the appellants was not the real due and on that basis the Bank proceeded to sell the property mortgaged.

A Nationalised Bank, a State within the meaning of Article 12 of the Constitution of India, should be cautious in taking step under Section 13(4) of the SARFAESI Act. While taking step under the said provision, the borrower should be informed of the actual amount of due payable. By claiming an exaggerated amount, if notice is given notwithstanding the fact that the real due is much less, the borrower is really defrauded and in the process, may lose his property for the unjust action of the Bank. In the case before us, the Bank resorted to Section 13(4) by asserting much higher amount of dues, which was not correct and thus, illegally took step for sale of the property. If the real amount of due was disclosed to the appellants, they might have paid the entire amount and there would not have been any occasion for even giving notice under Section 13(4) of the SARFAESI Act.

We, therefore, set aside the notice and all the consequent steps taken by the Bank on condition that the appellants should pay a sum of Rs. 2,07,526.94p. found to be due and payable by the Special Officer till 31 May, 2009 by the end of May, 2010. In default of such payment within the said period, the appeal will stand dismissed.

Although Mr. Routh prayed for direction for payment of interest for the last one year, we are not impressed by such submission. Having regard to the harassment caused to the appellants by facing various unnecessary litigations for the unjust and exaggerated claim of the Bank, as a measure of imposing costs of the litigation, although we do not impose any separate costs, we hold that no interest will be payable by the appellants on the aforesaid amount of Rs. 2,07,526.94p. for one year. We cannot lose sight of the fact that the learned Single Judge awarded costs of Rs. 50,000/- against the appellants although it has now come out that the real dues of the Bank was much less than the amount demanded by the Bank. If the real dues were demanded at the relevant time, there might not be any occasion for issuing the notice and the consequent auction for sale of the mortgaged property.

As regards the other appeal against the observations of the learned Single Judge about the pending criminal proceeding, we are of the view that this Court should not pass any direction upon the Criminal Court. We also do not make any observation on the merit of the criminal case. If any offence is found to have been committed, the law will take its own course. However, we having set aside the notice under Section 13 of the SARFAESI Act, and the consequent sale, the direction for expeditious sale in favour of the auction-purchaser is set aside and the appeal is allowed to that extent.

The Bank is directed to release all the securities on payment of the aforesaid amount to the concerned borrowers or the guarantors, as the case may

be. We further make it clear that in these proceedings, we have not gone into any question as to the extent of the liability that may arise out of the transaction between the borrowers and their developer and if any such dispute arises in future, the same should be agitated in the appropriate proceedings in accordance with law.

Both the appeals are, thus, allowed to the extent indicated above.

Tapan Kumar Dutt, J.:— I agree.

Pradip Kumar Das & Ors. v. Asstt. General Manager, Union Bank & Anr.

Judgment Summary (Bhaskar Bhattacharya, J.; Tapan Kumar Dutt, J. concurring)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellants' Arguments

Bank's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Pradip Kumar Das & Ors. v. Asstt. General Manager, Union Bank & Anr.

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