Citation Codes

Equivalent Citations

citation codes

Case Number

M.A.T No. 389 of 2013,CAN 3023 of 2013

Attorney(S)

Mr. Sovon Siddhanta, Advocate, Mr. Dinendra Nath Chatterjee, Advocate
Mr. Srijib Chakraborty, Advocate, Mr. Sirsanya Bandopadhyay, Advocate
For the State: Mr. Bhabes Ganguly, Advocate, Mr. Somnath Banerjee, Advocate

Judges

Ashim Kumar Banerjee
Mrinal Kanti Chaudhuri, JJ.

Acts

Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (hereinafter referred to as SARFAESI Act.
Section 17(1) of the Criminal Procedure Code
Judicial Magistrate.Section 3(1)(d)
Section 3(1)(d),
Section 14(2)

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Smart Summary

Judgment Summary — Ashim Kumar Banerjee, J.

Factual and Procedural Background

On February 6, 1996 the Agarwals formed M/s Chetani Exim Pvt. Ltd.; Dinesh Kumar Agarwal and Sunita Agarwal became its directors. The company applied to Andhra Bank for financial support, and the Bank sanctioned working capital of Rs. 40 lakhs (letter dated February 1, 2007). Dinesh and Sunita executed personal guarantees of Rs. 10 lakhs and Rs. 8 lakhs respectively.

The Agarwals did not adhere to the repayment schedule and the account was declared non-performing. On October 7, 2009 the Bank served a notice under Section 13(2) of the SARFAESI Act demanding Rs. 46,97,257.02. The Agarwals replied on November 28, 2009, contending the notice was illegal and referring to an existing compromise settlement which, they said, the Bank ought to have allowed them to honor. The Bank replied that the Agarwals never attended the branch for discussion. Chetani (the company) later asked for time, date and venue for discussing settlement on December 24, 2009, but no settlement occurred.

After about three years the Bank took physical possession of the flat owned by the Agarwals (the only tangible asset). The Bank obtained an order from the Chief Judicial Magistrate, Barasat under Section 14 of the SARFAESI Act dated September 16, 2011. Aggrieved, the Agarwals and Chetani filed a writ petition on December 13, 2012 before the Single Judge; the Single Judge, by order dated February 1, 2013, quashed the action taken by the Bank under Section 13(4) and granted liberty to proceed afresh. The Bank appealed; the appeal was heard on April 8, 2013.

Legal Issues Presented

Whether an order under Section 14 of the SARFAESI Act can validly be passed by a Chief Judicial Magistrate (or Chief Judicial Magistrate's office) in a non-metropolitan area, or whether the power under Section 14 is vested in the District Magistrate (and, in a metropolis, in the Chief Metropolitan Magistrate) as expressed in Section 14.
Whether the Bank's taking of physical possession of the flat was effected under Section 14 (requiring action by the appropriate authority) or under Section 13(4) (where the secured creditor itself takes possession), and whether the Single Judge was correct in quashing the possession on the ground that the Chief Judicial Magistrate lacked authority under Section 14.

Arguments of the Parties

Bank's Arguments (Appellant)

The Bank relied on authority (including a Kerala High Court decision and a Madras High Court decision) to contend that once the Chief Metropolitan Magistrate was permitted to exercise power under Section 14 in a metropolis, there is no reason why a Chief Judicial Magistrate in other towns/cities could not be empowered to exercise corresponding judicial power.
The Bank's counsel pointed to the Madras High Court judgment in Dhanlakshmi Bank Ltd. v. Kovai Foods and Beverages (2007) and the Solaris Systems (P) Ltd. v. Oriental Bank of Commerce (Kerala) decision as supportive precedents for their position.

Respondents' Arguments

Counsel for the Agarwals argued that Section 14 of the SARFAESI Act clearly confers the power (except in a metropolis) on the District Magistrate and not on any other person; therefore the Bank was not entitled to enforce an order obtained from a Chief Judicial Magistrate.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Solaris Systems (P) Ltd. v. Oriental Bank of Commerce (Kerala, 2006 Volume-II D.R.T.C. p.408)	Kerala High Court view relied upon by the Bank and referred to by the Single Judge (specific reasoning in that decision as cited at Bar related to the authority under Section 14).	The court noted the Single Judge differed with the Kerala High Court's view and the present court did not follow the Kerala High Court to the extent it treated the District Magistrate as interchangeable with the Chief Judicial Magistrate; the appellate court did not adopt Solaris to override the plain language of Section 14.
Indusind Bank Ltd. v. State of Maharashtra (Bombay, All India Reporter 2008 NOC-2474)	Relied upon by the Single Judge and cited at the Bar (the opinion lists it among considered authorities).	The appellate court recorded that this decision was considered by the Single Judge; the present court reviewed the authorities and reached its conclusions on statutory interpretation (the decision was part of material considered).
Transcore v. Union of India (All India Reporter 2007 Supreme Court p.712)	Apex Court decision considered by the Single Judge (referenced among higher-court authorities).	The appellate court noted it was one of the Apex Court decisions considered; the court relied on its own reading of Section 14/13 rather than deriving a distinct new rule from Transcore in the present judgment.
United Bank of India v. Satyawati Tondon ((2010) 8 SCC 110)	Apex Court decision considered by the Single Judge and cited at the Bar.	Cited as part of the authorities perused by the courts; the present court acknowledged it among precedents considered in the earlier judgment.
Whirlpool Corporation v. Registrar of Trade Marks, Mumbai ((1998) 8 SCC 1)	Apex Court decision relied upon by the Single Judge (listed among authorities).	The appellate court acknowledged reliance by the Single Judge; it did not explicitly base its decision on altering the legal principle taken from Whirlpool in this opinion.
Banani Kar & Anr. v. Union Of India & Ors. (W.P. No. 5968 (W) of 2013)	Reported as a case of similar nature where the Chief Judicial Magistrate's order was quashed (March 8, 2013) — cited as analogous earlier instance.	Noted by the court as an instance where a Chief Judicial Magistrate's order was quashed; part of factual matrix of related decisions considered.
Dhanlakshmi Bank Ltd. v. Kovai Foods and Beverages (Madras High Court, 2007 Volume-III Banking Cases p.612)	Madras High Court reasoning that interpreted CrPC provisions (Sections 17(1), 12(1), and 3(1)(d)) to treat references to Chief Judicial Magistrate in metropolitan areas as Chief Metropolitan Magistrate and addressed the return of an application by a Chief Judicial Magistrate.	The present court described the Madras High Court's approach and expressly declined to follow it to the extent it equated or read the District Magistrate as the Chief Judicial Magistrate for purposes of Section 14 where the statute expressly mentions District Magistrate.

Court's Reasoning and Analysis

The court conducted a two-part analysis: first on the statutory interpretation of Section 14 of the SARFAESI Act and related CrPC provisions, and second on the factual manner in which possession was taken.

On statutory interpretation, the court accepted the Single Judge's conclusion that Section 14, read in context, demonstrates legislative intent to entrust the power under Section 14 primarily to the District Magistrate (the Chief Executive of the District), with a specific exception for a metropolis where the Chief Metropolitan Magistrate is the designated authority. The court rejected the logic of the Madras and Kerala High Courts to the extent those courts treated the District Magistrate as interchangeable with a Chief Judicial Magistrate: the appellate court emphasized that where the statute explicitly names "District Magistrate" the language is plain and unambiguous and must be given effect.

The court further explained that the CrPC provisions (Sections 17(1), 12(1) and 3(1)(d) as cited in the Madras decision) do permit construing references to the Chief Judicial Magistrate in metropolitan areas as references to the Chief Metropolitan Magistrate, but that reasoning does not convert or substitute the District Magistrate where the statute explicitly requires the District Magistrate.

On the factual and operative question of how possession was taken, the court examined the documents and process: it found that the Assistant General Manager of the Bank took possession and signed the possession notice; the Chief Judicial Magistrate's order of September 16, 2011 had directed the Officer-In-Charge, Baguihati, to take possession under Section 14(2) but the actual possession notice bore the Assistant General Manager's signature and there was no implementation of the Chief Judicial Magistrate's order by the police or District authority as directed.

The court concluded Section 13(4) vests substantive power in the Bank to take possession following a valid Section 13(2) notice and default; Section 14 is an enabling provision to request administrative assistance and does not supplant or limit the Bank's independent power under Section 13(4). Consequently, although the Single Judge was correct on the point of statutory interpretation (that the District Magistrate is the designated authority under Section 14), the ultimate possession in this case was effectuated by the Bank under Section 13(4) (not by enforcement under Section 14). Therefore the Single Judge's direction to restore possession was not sustainable.

The court also considered equitable and factual circumstances: it observed that the borrowers had not made meaningful repayment, the Bank waited about three years after Section 13(2) notice, and no specific repayment proposals were made by the borrowers when asked; these factual observations influenced the court's view of the equities but the legal holding rested on the statutory reading and factual finding about how possession was taken.

Holding and Implications

Core Ruling: The appeal succeeds and is allowed; the writ petition is dismissed. The appellate court set aside the Single Judge's direction to restore possession.

Direct consequences for the parties:

The Bank's possession (as held to have been taken under Section 13(4)) stands and the direction of the Single Judge to restore possession is set aside.
There shall be no order as to costs.
An urgent certified copy of the judgment was to be made available to the parties on usual undertaking.

Broader implications: The court expressly upheld the Single Judge's statutory interpretation (that Section 14 vests power in the District Magistrate except in metropolises where the Chief Metropolitan Magistrate is appropriate), but on the operative factual finding the court held the Bank's action was under Section 13(4). The opinion does not purport to create a new precedent beyond its statutory interpretation and factual application; it records disagreement with certain High Court decisions (Madras and Kerala) on their reading of Section 14, but the decision primarily resolves the present parties' dispute on the facts and law as applied here.

Additional Note: The judgment records that Dr. Mrinal Kanti Chaudhuri, J. agreed with this judgment.

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Andhra Bank & Ors. v. Sri Dinesh Kumar Agarwal & Ors.

The Judgment of the Court was delivered by

Ashim Kumar Banerjee, J.:—

FACTS:

On February 6, 1996 Agarwals formed a company by the name of M/s Chetani Exim Pvt. Ltd., the couple Dinesh Kumar Agarwal and Sunita Agarwal became its Directors. Chetani applied for financial support from Andhra Bank. The Bank sanctioned credit facility to the extent of Rs. 40 lacs as working capital vide letter dated February 1, 2007. Dinesh and Sunita executed personal guarantee to the extent of Rs. 10 lacs and Rs. 8 lacs respectively. Agarwals did not adhere to the repayment schedule. The Bank declared the account as non-performing. On October 7, 2009, the Bank served a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (hereinafter referred to as ‘SARFAESI’ Act. inter alia demanding a sum of Rs. 46,97,257.02. The respondent replied to the said notice on November 28, 2009 by contending; the said notice was illegal and as such liable to be quashed. In paragraph 7(II) of the said letter the learned advocate appearing for Agarwals would contend, “before taking such qusi step under the Act of 2002 the bank ought to have allowed and/or called upon my client to pay balance unpaid amount under compromise settlement which settlement is still in operation and vogue”. The Bank replied by letter dated December 9, 2009, the Agarwals never turned up to the branch for any discussion. Chetani replied by letter dated December 24, 2009 asking for time, date and venue for discussing settlement. Nothing happened. The authority waited for about three years and ultimately took physical possession of the flat being the only tangible asset belonging to Agarwals. On November 6, 2012 challenging the action of the Bank for taking possession of the flat in question Agawrals and Chetani filed a writ petition before the learned Single Judge on December 13, 2012. The learned Single Judge allowed the writ petition vide judgment and order dated February 1, 2013 quashing the action taken by the bank under Section 13(4) coupled with liberty to proceed afresh. Being aggrieved, Bank preferred the instant appeal that we heard on April 8, 2013.

ANALYSIS OF THE JUDGMENT AND ORDER OF THE LEARNED SINGLE JUDGE:

Learned Judge did not consider the merits of the case. His Lordship considered the provisions of law and ultimately came to the conclusion, the action on the part of the Bank was illegal. Pertinent to note, the Bank approached the Chief Judicial Magistrate, Barasat, 24-Parganas with an application under Section 14 of the SARFAESI Act and obtained an order on September 16, 2011 to take actual physical possession of the immovable properties/secured assets. According to the learned Judge, Section 14 would not empower a Chief Judicial Magistrate to pass such order as the power was vested upon the Chief Metropolitan Magistrate in Metropolis and the District Magistrate in the rest part of the State. Barasat is not a Metropolis nor is Baguihati where the flat is situated. Hence, the Chief Judicial Magistrate did not have any authority under Section 14. The Bank should have approached the District Magistrate, 24-Parganas (North) for appropriate order. His Lordship differed with the view expressed by the Kerala High Court in the case of Solaris Systems (P) Ltd. v. Oriental Bank of Commerce reported in 2006 Volume-II D.R.T.C page-408 Kerala and relied on the decision of the Bombay High Court in the case of Indusind Bank Ltd. v. State of Maharashtra reported in All India Reporter 2008 NOC-2474 (Bombay). His Lordship also considered the Apex Court decision in the case of Transcore v. Union of India reported in All India Reporter 2007 Supreme Court page-712 and in the case of United Bank of India v. Satyawati Tondon reported in (2010) 8 SCC 110. His Lordship lastly relied on the Apex Court decision in the case of Whirlpool Corporation v. Registrar of Trade Marks, Mumbai reported in (1998) 8 SCC 1. We are told in a case of the like nature His Lordship in W.P No. 5968 (w) of 2013 Banani Kar & Anr. v. Union Of India & Ors., quashed an attempt of the secured creditor on the strength of an order passed by the Chief Judicial Magistrate, 24-Parganas (South) vide judgment and order dated March 8, 2013.

CONTENTIONS:

Mr. Sovon Siddhanta, learned counsel appearing with Mr. Dinendra Nath Chatterjee, learned counsel advanced the argument on behalf of the Bank. Mr. Siddhanta would bank upon the Kerala High Court decision and contend, once the Chief Metropolitan Magistrate was permitted to exercise power under Section 14 there would be no reason why the Chief Judicial Magistrate in respect of other cities and/or towns would not be empowered to exercise such judicial power which their counterpart would avail sitting in Metropolis. Mr. Siddhanta drew our attention to the decision of the learned Single Judge in case of Solaris Systems (P) Ltd. (supra). He would also rely upon a Madras High Court decision in the case of Dhanlakshmi Bank Ltd. v. Kovai Foods and Beverages reported in 2007 Volume-III Banking Cases page-612. The learned Single Judge of the Madras High Court considered Section 14 and observed as follows:

“On perusal of the impugned order it appears that the learned Chief Judicial Magistrate is under misconception. Since the term “Chief Judicial Magistrate” is missing in the Act, instead “District Magistrate” is mentioned, erroneously returned the application. Power has been conferred on the District Head in metropolitan areas as well as in the non-metropolitan areas to initiate proceedings in this regard. Section 17(1) of the Cr.P.C reads as follows:

“The High Court shall, in relation to every metropolitan area within its local jurisdiction, appoint a Metropolitan Magistrate to be the Chief Metropolitan magistrate for such metropolitan area.”

Section 12(1) of the Cr.P.C reads as follows:

“In every district (not being a metropolitan area), the High Court shall appoint a Judicial Magistrate of the First Class to be the Chief Judicial Magistrate.”

Section 3(1)(d) of the Cr.P.C reads as follows:

“any reference to the Chief Judicial Magistrate shall, in relation to a metropolitan area, be construed as a reference to the Chief Metropolitan Magistrate exercising jurisdiction in that area.”

The power conferred with the Chief Metropolitan Magistrate is equal to the Chief Judicial Magistrate in the District level. The learned District Magistrate will be seen only as Chief Judicial Magistrate. The return of the application of the petitioner is erroneous.”

His Lordship relied on Section 17(1) of the Criminal Procedure Code that would provide, the High Court in relation to every Metropolis would appoint a Metropolitan Magistrate to be the Chief Metropolitan Magistrate and under Section 12(1) a Judicial Magistrate to be the Chief Judicial Magistrate. Under Section 3(1)(d), any reference to the Chief Judicial Magistrate shall, in relation to a metropolitan area would be construed as a reference to Chief Metropolitan Magistrate. On a combined reading of the said provisions, His Lordship observed, the District Magistrate as mentioned in Section 14 would be seen only as Chief Judicial Magistrate.

Per contra, Mr. Srijib Chakraborty, learned counsel would contend, Section 14 was clear on the issue except in a Metropolis the power was conferred on a District Magistrate and not any other person. Hence, the Bank was not entitled to enforce the order of the Chief Judicial Magistrate.

OUR VIEW:

We have considered the rival contentions. We have carefully perused the judgment and order of the learned Single Judge and the precedents cited at the Bar and relied upon by the learned Single Judge. In our considered view, the learned Single Judge was not only correct but also accurate to interpret the provision of law. If we read Section 14, it would clearly mean, the legislature did not intend to bring the Court of law at the stage of Section 13 or 14. Hence, it entrusted the Chief Executive of the District to exercise the power under Section 14. Only exception was made in case of Metropolis that was entrusted to the Chief Metropolitan Magistrate. We do not support the logic of the Madras High Court or the Kerala High Court to the extent, District Magistrate should be seen as Chief Judicial Magistrate. The learned Single Judge of the Madras High Court considered the relevant provisions of the Criminal Procedure Code where the Chief Metropolitan Magistrate was authorized to use the power that was vested on the Chief Judicial Magistrate. It was not otherway round. Had it been only Chief Metropolitan Magistrate, we would have supported the logic. Once the District Magistrate was clearly mentioned in Section 14, the intent was clear and unambiguous. We cannot interpret otherwise. We fully agree, in a case of Metropolis, the Chief Metropolitan Magistrate having the expertise to examine the provisions of law, would judiciously exercise such power whereas in case of other cities or towns the District Magistrate being an Executive without having the legal expertise would not be so competent like Chief Metropolitan Magistrate. It is for the legislature to amend the law if they intend to do so. So long it is not done, we are unable to support the view of the Madras High Court or the Kerala High Court. We fully support the learned Single Judge on the proposition of law.

We should have ended here, however, our conscience would prick looking at the facts. Writ Court is a Court of equity. Court of appeal being an extension of the original jurisdiction cannot be oblivion and cannot shut their eyes that would result in a gross injustice, rather it would be a premium to dishonesty. On examination of the facts we would find, the couple formed a company and obtained credit facilities to the extent of Rs. 40 lacs. Possibly, they did not repay any sum, at least not specifically claimed in their reply to the Bank. Even if it was paid it would be pittance considering the amount of the dues. Working capital loan was granted to the extent of Rs. 40 lacs for trading. The company had no tangible asset at all. The couple had only the flat that could be taken possession of. Plant and machinery was shown as Rs. 4 lacs. We fail to appreciate, how plant and machinery would be relevant for trading of plastic granules. Bank officials must be involved in the fraud. The loan was sanctioned on January 31, 2007. It was to be repaid by January 30, 2009. The amount of Rs. 40 lacs became Rs. 46 lacs within two years. The reply to the notice under Section 13(2) did not make any specific proposal to repay. The reply to the Bank would show, the borrower never approached the Bank for repayment. In course of hearing, we asked Mr. Chakraborty as to what amount the borrower would pay to show their bona fide. We adjourned the matter on April 5, 2013. Mr. Chakraborty was prompt enough to inform us on the next day, he was not in a position to pay anything. It is true, the Bank dispossessed the couple. It is also true, Bank waited for long three years even after service of notice under Section 13(2). During these three years period not a single penny was repaid.

If we consider Section 13 and 14 together, we would find, there had been subjective compliance. The Bank issued notice under Section 13(2) demanding payment. The Bank was entitled to take possession under Section 13(4) that they took. Section 14 was an enabling provision for obtaining necessary administrative help that would not take away the substantive power of the Bank under Section 13(4). Section 13(4) would empower the Bank to take possession in case of default in making payment of the outstanding so demanded under Section 13(2). The Bank was not obliged to approach any authority under Section 14 for taking possession. Section 14 would empower the Bank to approach the appropriate authority under the said provision making a request to take possession on their behalf if they so like. It was rather making a request to an authority to take possession on their behalf.

From the documents it appears, the Bank officer being the Assistant General Manager, Andhra Bank took possession on behalf of the Bank and not the District Magistrate or the Chief Judicial Magistrate or the police authority, hence, such possession was under Section 13(4) not under Section 14. If we look to the order dated September 16, 2011 passed by the Chief Judicial Magistrate, we would find the Officer-In-Charge, Baguihati, was directed to take possession under Section 14(2) however, the possession notice was signed by the Assistant General Manager and not Officer-In-Charge, hence, the order of the Chief Judicial Magistrate was not acted upon at all. If the police force gave necessary police assistance to the Bank Manager that would be for protection of the officer from any untoward incident or to prevent breach of peace. The possession so taken by the Bank in our view, was under Section 13(4) and not under Section 14. Hence, although we fully agree with the finding of the learned Judge on the proposition of law, we beg to differ with His Lordship on the ultimate decision. His Lordship held, the approach of the Bank under Section 14 was contrary to law. We find, the ultimate approach was not under Section 14 but under Section 13(4), hence, His Lordship's direction to restore possession cannot be sustained and as such is set aside.

Appeal succeeds and is allowed. The writ petition is dismissed. There would be however no order as to costs.

Urgent certified copy of this judgment, if applied for, be given to the parties on their usual undertaking.

Dr. Mrinal Kanti Chaudhuri, J.:— I agree.

Andhra Bank & Ors. v. Sri Dinesh Kumar Agarwal & Ors.

Judgment Summary — Ashim Kumar Banerjee, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Bank's Arguments (Appellant)

Respondents' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Andhra Bank & Ors. v. Sri Dinesh Kumar Agarwal & Ors.

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