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Aum Jewels And 3 Others v. Vijaya Bank .
Structured Summary of the Opinion
Factual and Procedural Background
The petition challenges a possession notice dated 6 March 2017 issued by the Authorized Officer of respondent Vijaya Bank under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the "Act") read with Rule 8 of the Security Interest (Enforcement) Rules, 2002. The petitioner also sought quashing of a notice dated 15 December 2016 under sub-section (2) of Section 13 of the Act and a newspaper publication dated 9 March 2017 relating to taking possession.
The petitioners had been granted credit facilities by the Bank and defaulted in payment. The account was declared a Non-Performing Asset (NPA) by an order dated 31 December 2014. The Bank issued a notice under section 13(2) on 1 January 2015 and passed an order under section 13(4) on 17 March 2015; possession measures followed. The petitioners filed Writ Petition No. 15456 of 2015. An interim order was passed on 24 March 2015 directing the Bank not to take further measures pursuant to the possession notice and, ultimately, the Division Bench allowed the writ on 18 May 2015 setting aside the 31 December 2014 NPA declaration, the section 13(2) notice and the section 13(4) order. The Bank's Special Leave Petition was disposed on 21 September 2015, with the Supreme Court declining to interfere and permitting the Bank to commence re-operation of the account.
The Bank thereafter issued another section 13(2) notice on 8 August 2016 which erroneously referred to the 31 December 2014 NPA order; after the petitioners pointed this out, the Bank issued a corrected section 13(2) notice dated 5 December 2016 stating that the account had been classified as NPA on 29 April 2015. The petitioners filed Writ C-No. 7472 of 2017 against that notice; it was dismissed as premature on 16 February 2017 because no measures under section 13(4) had then been taken. The Bank rejected the petitioners' objections by a detailed order dated 19 February 2017 and issued the possession notice on 6 March 2017.
Legal Issues Presented
- Whether the possession notice dated 6 March 2017, the notice dated 15 December 2016 under section 13(2) and the newspaper publication dated 9 March 2017 should be quashed.
- Whether the Bank could classify the petitioners' account as NPA by an order dated 29 April 2015 despite an interim order dated 24 March 2015 that restrained further measures pursuant to the earlier possession notice.
- Whether the High Court should entertain the petition when the petitioners have an efficacious statutory remedy of filing an appeal under Section 17 of the SARFAESI Act.
Arguments of the Parties
Petitioners' Arguments
- The Bank could not classify the account as NPA on 29 April 2015 because that classification would contravene the interim order dated 24 March 2015 in Writ C-No. 15456 of 2015, which was ultimately upheld by judgment dated 18 May 2015.
- The order dated 29 April 2015 was not placed before the Division Bench in the earlier writ petition nor before the Supreme Court, and any action taken by the Bank on the basis of that order is therefore without jurisdiction.
- Accordingly, neither could the Bank issue the fresh notice under section 13(2) nor pass an order under section 13(4) based on the 29 April 2015 classification.
Respondent-Bank's Arguments
- The fresh section 13(2) notice and the order under section 13(4) are lawful and in accordance with law.
- Even if there are grievances, the petitioners have an effective statutory alternative remedy by filing an appeal under Section 17 of the Act.
- The Bank relied on the Supreme Court decision in United Bank of India v. Satyawati Tandon (2010) 8 SCC 110 to support its contention that the statutory remedy must be availed.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| United Bank of India v. Satyawati Tandon, (2010) 8 SCC 110 | Establishes that persons aggrieved by action under Section 13(4) or Section 14 have an efficacious and effective remedy by filing an appeal under Section 17(1); High Courts should ordinarily not entertain petitions under Article 226 when the statute provides an effective remedy, particularly in matters involving recovery of dues of banks and financial institutions; the rule of exhaustion of statutory remedies applies with greater rigour in such matters. | The court relied on Satyawati Tandon to conclude that the petitioners have a statutory alternative remedy under Section 17 and therefore the High Court should not examine the substantive issues in the present petition; consequently the petition was dismissed. |
| Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad, AIR 1969 SC 556 | Referenced in Satyawati Tandon as one of the authorities delineating exceptions where the High Court may grant interim relief despite availability of statutory remedies. | The opinion cites this case (through Satyawati Tandon) as an example of precedents that carve out exceptions; the court indicated that such exceptions may permit interim relief in appropriate cases, but did not apply an exception here. |
| Whirlpool Corporation v. Registrar of Trade Marks, Mumbai, (1998) 8 SCC 1 | Referenced in Satyawati Tandon as another authority illustrating exceptions to the rule of exhaustion of statutory remedies. | The court mentioned this authority as part of the Satyawati Tandon exposition on exceptions; the court did not find those exceptions applicable to the present petition. |
| Harbanslal Sahnia v. Indian Oil Corporation Ltd., (2003) 2 SCC 107 | Referenced in Satyawati Tandon as a precedent that forms part of the exceptions to the general rule that statutory remedies must be exhausted before invoking Article 226. | Cited as part of the authority in Satyawati Tandon; the court noted these exceptions exist but did not find them to justify entertaining the present petition. |
Court's Reasoning and Analysis
The Court first recited the factual background: initial classification as NPA on 31 December 2014, subsequent notices and order under section 13(4) and the possession notice, the writ (Writ C-No. 15456 of 2015), interim order of 24 March 2015, and the Division Bench judgment of 18 May 2015 setting aside the NPA classification, the section 13(2) notice and the section 13(4) order.
The Court addressed the petitioners' objection to the Bank's subsequent classification of the account as NPA by order dated 29 April 2015 (an order not placed before the earlier courts and made during the interim order period). The Court rejected the petitioners' contention that the Bank could not classify the account as NPA on 29 April 2015. The Court explained (as stated in the opinion) that:
- Classifying an account as NPA is a step that is prior to taking possession (i.e., it is not a step subsequent to possession);
- The Division Bench's interim order dated 24 March 2015 had directed the Bank not to take further measures pursuant to the possession notice, but it did not prohibit classification of the account as NPA per se; and
- The Bank initially made a mistake in the 8 August 2016 notice by referring to the 31 December 2014 order; it rectified the error by issuing the corrected notice dated 5 December 2016 alleging classification on 29 April 2015.
The Court noted that the petitioners' objections to the section 13(2) notice were rejected by a detailed order dated 19 February 2017 and that a possession notice was subsequently issued. However, rather than examining the multiple submissions made by the petitioners to set aside the section 13(4) order and the possession notice, the Court declined to consider these issues on merits because the petitioners have a statutory alternative remedy of filing an appeal under Section 17 of the Act.
In support of this approach the Court relied on the Supreme Court's ruling in Satyawati Tandon which emphasizes that where an effective statutory remedy exists (here, an appeal under section 17), the High Court should ordinarily require exhaustion of that remedy before entertaining relief under Article 226, particularly in cases affecting recovery of dues by banks and financial institutions. The Court observed that the Satyawati Tandon judgment identifies that the remedies under the SARFAESI Act are expeditious and effective and that High Courts must exercise self-restraint.
Applying these principles, the Court held that it was not appropriate to decide the substantive challenges in the present petition and directed that the petitioners may pursue their remedy under Section 17; therefore the petition was dismissed.
Holding and Implications
Holding: The petition is DISMISSED.
Implications:
- The direct effect of the decision is that the petitioners' challenge to the possession notice dated 6 March 2017, the section 13(2) notice and related measures is not adjudicated on merits by this Court; instead the petitioners are directed to avail the statutory remedy of filing an appeal under Section 17 of the SARFAESI Act.
- The Court made clear that any observations in its judgment shall not bind the Authority deciding an appeal under Section 17 and that any such appeal, if filed, must be decided in accordance with law.
- The opinion follows and applies the principle in United Bank of India v. Satyawati Tandon that statutory remedies under the SARFAESI regime must ordinarily be exhausted before invoking Article 226; the Court did not purport to create a new precedent beyond applying that settled law.
End of summary based exclusively on the provided opinion.
1. This petition seeks the quashing of the possession notice dated 6 March 2017 issued by the Authorized Officer of the respondent-Vijaya Bank under the provisions of the Securitization and Reconstructions of Financial Assets and Enforcement of Security Interest Act, 2002 read with Rule 8 of the Security Interest (Enforcement) Rule, 2002. The petitioner has also sought the quashing of the notice dated 15 December 2016 issued under subsection (2) of Section 13 of the Act as also the newspaper publication dated 9 March 2017 for taking possession.
2. The petitioners were granted various credit facilities by the respondent-Bank and on certain terms and conditions contained in the agreements and documents executed by the petitioners in favour of the Bank. The petitioners committed default in making the payment of the principal amount and interest as a result of which the account of the petitioners was declared as Non Performing Asset on 31 December 2014. Thereafter, a notice dated 1 January 2015 under sub-section (2) of Section 13 of the Act was issued. The petitioners had earlier filed Writ Petition No. 15456 of 2015 to assail the declaration of the account of the petitioners as NPA as also the notice issued under sub-section (2) of Section 13 of the Act. An order under sub-section (4) of Section 13 was also passed on 17 March 2015. This order was also challenged. The writ petition was allowed by judgment dated 18 May 2015. The order dated 31 December 2014 declaring the account of the petitioners as NPA was set aside. The notice under sub-section (2) of Section 13 of the Act and the order passed under sub-section (4) of Section 13 of the Act were, accordingly, set aside. The respondent-Bank filed Special Leave to Appeal No. 26018 of 2015 which was disposed of on 21 September 2015. The Supreme Court found no justification to interfere with the judgment dated 18 May 2015 passed by the Division Bench of this Court. The Supreme Court permitted the Bank to commence re-operation of the account of the petitioners in two days.
3. Thereafter, a notice under sub-section (2) of Section 13 of the Act was again issued by the respondent-Bank on 8 August 2016. Though the order dated 31 December 2014 declaring the account of the petitioners as NPA had been set aside by the Division Bench of this Court, the aforesaid notice dated 8 August 2016 made reference to the order dated 31 December 2014 that declared the account of the petitioners as NPA. The petitioners pointed out this fact to the Bank. Soon thereafter, the Bank issued a fresh notice dated 5 December 2016 under sub-section (2) of Section 13 of the Act this time mentioning 29 April 2015 as the date on which the account of the petitioners was classified as NPA by the Bank.
4. This notice was sought to be assailed by the petitioner by filing Writ C-No. 7472 of 2017. This petition was dismissed as premature by a Division Bench of this Court by order dated 16 February 2017 for the reason that no measures as contemplated under sub-section (4) of Section 13 of the Act had been taken by the Bank.
5. The Bank by a detailed order dated 19 February 2017 has rejected the objections filed by the petitioners and thereafter a possession notice dated 6 March 2017 has been issued.
6. Sri. A.D. Saunders, learned counsel appearing for the petitioners has submitted that it was not open to the Bank to classify the account of the petitioner as NPA by order dated 29 April 2015 as that would be in contravention of the interim order dated 24 March 2015 passed in Writ C-No. 15456 of 2015 that had earlier been filed by the petitioners and which was ultimately allowed by the judgment and order dated 18 May 2015. Learned counsel also pointed out that this order dated 29 April 2015 was not brought to the notice of the Court in the earlier writ petition nor was it placed before the Supreme Court. It is, therefore, the contention of learned counsel for the petitioners that any action taken subsequently by the respondent-Bank on the basis of this order dated 29 April 2015 is without jurisdiction. The submission, therefore, is that neither the Bank could have issued the fresh notice under sub-section (2) of Section 13 of the Act nor could an order be passed under sub-section (4) of Section 13 of the Act.
7. Sri. Girish Kumar Srivastava, learned counsel appearing for the respondent-Bank has, however, submitted that the fresh notice issued under sub-section (2) of Section 13 of the Act and the order passed under subsection (4) are in accordance with law and even otherwise the petitioners have a statutory alternative remedy of filing an application under Section 17 of the Act. In support of this submission learned counsel has placed reliance upon a decision of the Supreme Court in United Bank of India v. Satyawati Tandon (2010) 8 SCC 110
8. We have considered the submissions advanced by learned counsel for the parties.
9. The respondent-Bank had earlier proceeded under the provisions of the Act after declaring the account of the petitioners as NPA by order dated 31 December 2014. Thereafter, the notice dated 1 January 2015 under subsection (2) of Section 13 of the Act was issued and order under sub-section (4) of Section 13 of the Act was passed on 17 March 2015. Possession notice was also issued. These were assailed by the petitioners, as noted above, in Writ C-No. 15456 of 2014. Initially an interim order was passed in the said petition on 24 March 2015 directing the respondent-Bank not to take further measures pursuant to the possession notice having been issued. Ultimately, the Division Bench of this Court allowed the petition by judgment dated 18 May 2015. The action taken by the Bank classifying the account of the petitioners as NPA was found to be illegal and against the guidelines issued by the Reserve Bank of India. The Division Bench, accordingly, set aside the order dated 31 December 2014 by which the account was declared as NPA. The notice under sub-section (2) of Section 13 of the Act and the order passed under sub-section (4) of Section 13 of the Act were also set aside.
10. The respondent-Bank again classified the account of the petitioners as NPA by order dated 29 April 2015. This order was not brought to the notice of the Division Bench in Writ Petition No. 15456 of 2015 and it was also issued when there was an interim order dated 24 March 2015 in operation. The submission of learned counsel for the petitioners is that it was, therefore, not open to the Bank to classify the account of the petitioners as NPA by order dated 29 April 2015.
11. This submission of learned counsel for the petitioners cannot be accepted. Classifying an account as NPA is prior to the taking of possession and not subsequent to the taking of possession. The Division Bench in its interim order dated 24 March 2015 had merely directed the Bank not to take further measures pursuant to the possession notice. It is also true that initially when the Bank issued a fresh notice under sub-section (2) of Section 13 of the Act on 8 August 2016, it made a reference to the order dated 31 December 2014 by which the account of the petitioners had been declared as NPA. This mistake was rectified and a fresh notice under sub-section (2) of Section 13 was issued on 5 December 2016. The Bank could have issued a fresh order to declare the account of the petitioners as NPA.
12. The objections filed by the petitioners to the notice issued under subsection (2) of Section 13 of the Act have been rejected by a detailed order dated 19 February 2017 and thereafter, the notice for possession has been issued.
13. Learned counsel for the petitioners has made a number of submissions for setting aside the order passed under sub-section (4) of Section 13 of the Act as also the issuance of the possession notice, but we do not consider it appropriate to examine these issues at this stage as the petitioners have a statutory alternative remedy of filing an appeal under Section 17 of the Act.
14. This issue as to whether a petition should be entertained when an appeal can be filed under section 17 of the Act if a person is not satisfied with the disposal of the objections has been examined by the Supreme Court in Satyawati Tandon and the observations are:
“17. There is another reason why the impugned order should be set aside. If respondent No. 1 had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14, then she could have availed remedy by filing an application under Section 17(1). The expression ‘any person’ used in Section 17(1) is of wide import. It takes within its fold, not only the borrower but also guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute.
18. While expressing the aforesaid view, we are conscious that the powers conferred upon the High Court under Article 226 of the Constitution to issue to any person or authority, including in appropriate cases, any Government, directions, orders or writs including the five prerogative writs for the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of that power but, at the same time, we cannot be oblivious of the rules of self-imposed restraint evolved by this Court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom any reason why the High Court should entertain a petition filed under Article 226 of the Constitution and pass interim order ignoring the fact that the petitioner can avail effective alternative remedy by filing application, appeal, revision, etc. and the particular legislation contains a detailed mechanism for redressal of his grievance. It must be remembered that stay of an action initiated by the State and/or its agencies/instrumentalities for recovery of taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations towards the citizens. In cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which ultimately prove detrimental to the economy of the nation. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters. Of course, if the petitioner is able to show that its case falls within any of the exceptions carved out in Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad, AIR 1969 SC 556, Whirlpool Corporation v. Registrar of Trade Marks, Mumbai, (1998) 8 SCC 1 and Harbanslal Sahnia v. Indian Oil Corporation Ltd., (2003) 2 SCC 107 and some other judgments, then the High Court may, after considering all the relevant parameters and public interest, pass appropriate interim order.
… ………………..
27. It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection.”
(emphasis supplied)
15. The aforesaid judgment of the Supreme Court in Satyawati Tandon emphasises that a borrower, a guarantor or any other person who may be affected by the action taken under Section 13(4) of the Act have an efficacious and effective statutory remedy of filing an appeal under Section 17 of the Act and, therefore, the High Courts should not overlook the settled law that a petition, in such circumstances, should not be entertained, particularly when matters relating to dues of Bank and other financial Institutions are involved. In fact in all such cases, the High Courts must insist that the alternative remedies under the relevant Statutes are first exhausted.
16. Thus, when the petitioners have a statutory alternative remedy of filing an appeal under Section 17 of the Act in which all the factual aspects can properly be examined, we do not consider it appropriate to examine these issues in the present petition. The petition is, accordingly, dismissed.
17. It is made clear that any observation made by the Court in the judgment shall not bind the Authority deciding the appeal under Section 17 of the Act and the Appeal, if filed, shall be decided in accordance with law.
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