>
O R D E R
1. This is an application under Section 17(1) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(hereinafter referred to as SARFAESI Act) filed by the applicant challenging the notices under Section 13(2) and 13(4) as well as Section 14 of the SARFAESI Act.
2. The facts of the case as made out in the SARFAESI application is that the petitioners have jointly started a partnership business in the name and style of M/s Sunita Traders of which Mr. Ajaya Gochhayat (petitioner No.2 is the Managing Partner).The said partnership business for its expansion incurred loan from the Opp. Party which is a Financial Organisation and had floated various schemes to render financial assistance to the intending borrowers.
3
The petitioners applied for a loan of Rs.1,33,70,740/- and as per the terms of the said financing, the petitioners were asked to execute various documents and by way of collateral security they were asked to execute equitable mortgage deed by deposit of the title deed in respect of the property situated at Mouza Cuttack Sahara Unit No.27, Gandarpur Tahasil, Bungalow khata No. 386Plot No.557 measuring an Area Ac 0.045 decimals, Plot No. 578/1224 measuring an area of Ac 0.020 decimals Dist: Cuttack. The petitioners were regularly paying the instalment dues as would be evident from the details of the loan account statement As a matter of fact the petitioners have already deposited instalments dues of more than 16 instalments and due to some business loss as many of the retailers who had availed the credit facilities did not pay back the dues in time for which the petitioners were unable to pay the instalment dues in time. Since the loan incurred was repayable within 15 years i.e. by 15.06.2030, the petitioners were very much hopeful that sooner there will be released of the dues from their creditors/retailers and the petitioners will be able to make the installment payment including the amount which has become overdue and regularise the loan account. The Opp. party all on a sudden on 04.05.2017 served a notice u/s 13(2) of SARFAESI Act calling upon the petitioners to pay the entire loan amount of Rs.1,33,70,740/-. The petitioner in reply to the said notice earnestly requested the Opp. Party to consider the genuine difficulty of the petitioners giving an assurance that by incurring
4
loan from their friends and relations, the petitioners will regularize the loan account. The petitioners have also assured that they are making arrangements to pay nearly Rs.5,00,000/- (Five Lakhs) within 20 days and the balance will be paid on regular instalment basis without any default in future. The Opp. Party arbitrarily issued notice on 24.05.2017 mentioning therein that the representation of the petitioners is not tenable and they shall be constrained to take symbolic possession of the mortgaged property. The petitioner filed W.P.(C) No.11683 of 2017 on 13.06.2017, challenging therein that the notice U/s 13(2) of the SARFAESI Act and to restrain the Opposite party No.1 from taking symbolic possession of the secured assets. This Hon'ble Court by its order dated 22.06.2017 was pleased to issue notice to the Opposite party No.1 and had directed the petitioners to deposit an amount of Rs.6,00,000/- to the present Opposite party No.1, within a period of 3 weeks and further directed that the Opposite party No.1 shall take no further action against the petitioners pursuant to the notice U/s 13(2) of the SARFAESI Act. The petitioners in compliance with the aforesaid order dated 22.06.2017, deposited Rs.6,00,000/- on 03.07.2017 by RTGS in favour of the present Opposite party No.1. This Hon'ble High Court by its order dated 29.08.2017 disposed of the writ petition with a direction that in the event the petitioners deposited an amount of Rs.8,00,000/- with the Opposite party No.1 herein within 6 weeks hence and files an application for regularization of the loan account, the same shall be considered by
5
the Financer/Opposite party No.1 sympathetically in terms of its existing guideline and as has been done in similar other cases and the final decision shall be taken thereon within a period of 6 weeks thereafter. It was further directed that till the final decision is taken on the application of the petitioners , no coercive action was to be taken against the petitioners pursuant to the demand notice. The petitioners deposited Rs.2,00,000/- with the Opposite party No.1 through RTGS on 17.11.2017. That the petitioners filed Misc.Case No. 19243 of 2017 for extension of time to deposit the balance amount of Rs.6,00,000/-. This Hon'ble Court by its order dated 22.11.2017 extended the time to deposit the amount within further period of 2 weeks. However, there being a typographical error in the order dated 22.11.2017, the same was clarified by the order dated 04.12.2017, wherein the balance amount of Rs.6,00,000/- was directed to be deposited within further period of one week. The petitioners on 08.12.2017 deposited by RTGS in favour of the Opposite party No.1 an amount of Rs.2,00,000/- . The petitioners filed I.A.No.9598 of 2018 and prayed for extension of time to deposit the balance amount of Rs.4,00,000/-. This Hon'ble Court by its order dated 12.07.2018 considering the prayer of the petitioners, as a last chance permitted the petitioners to deposit the balance amount of Rs.4,00,000/- within further period of one week. The petitioners in obedience to the Hon'ble High Court's Order deposited the balance amount of Rs.4,00,000/- in two transactions by RTGS on 09.07.2018 and 18.07.2018 of Rs.2,00,000/- each in
6
favour of the Opposite party No.1. When the matter stood thus, the petitioners approached the Opposite party No.1 by an application for regularization/rephasement of the loan account on 20.07.2018 in compliance with the order dated 29.08.2017 and 12.07.2018 passed by this Hon'ble Court in the aforesaid W.P.(C)No.11683 of 2017. This letter was also sent to the Collector, Cuttack for information. The Opposite party No.1 had approached the Collector & District Magistrate, Cuttack by filing a petition U/s 14 of the SARFAESI Act. The Opposite party No.2, Collector, Cuttack, without issuing notice to the petitioners and without taking into consideration, the repayment by the petitioners as per the order of this Hon'ble Court, an amount of Rs.14,00,000/-, by its order No. 160 /Court dated 31.07.2018 allowed the application of Opposite party No.1 to take possession of the secured asset and further the Opposite party No.2 has requested the Opposite party No.3, D.C.P.,Cuttack to provide necessary police assistance in taking over the possession of secured assets. In the mean time the Opposite party No.1 communicated a letter dated 11.06.2018 to the petitioner No.2 indicating the actual statement of the loan account. In the said statement the total EMI from the period 01.04.2017 to 31.03.2018 is Rs.10,30,000/-. The impugned order has been passed ignoring the statutory provisions of Sec. 14 of SARFAESI Act. The provision of Section 14(1) requires the Collector to be satisfied regarding the contents of the affidavit filed by the Authorised Officer of the secured creditor. As
7
such, the Collector ought to have given notice to the petitioners to ascertain the correct position so far as compliance of Sec.14 (1)(viii). The Opposite party no. 1 has suppressed the fact that this Hon'ble Court by its order dated 29.08.2017 had directed for consideration of an application for regularization and that the petitioners have deposited an amount of Rs.14,00,000/- as per the Court's order. This suppression of facts makes the Authorised Officer of the Opposite party No.1 liable for perjury for filing false affidavit before the Statutory Authority U/s 14 of the SARFAESI Act. The application for regularization of the loan account dated 20.07.2018 was also communicated to the Collector ,Cuttack - Opposite party No.2 . The Opposite party No.2 has not taken note of the order of this Hon'ble Court and the deposits made by the petitioners. The Opposite party No.2 has passed the impugned order without applying mind as to the substantial deposits made by the petitioners. The Collector, Cuttack could not have passed the impugned order in view of the order of this Hon'ble Court and the deposits made by the petitioners after the notice U/s 13(2) of the SARFAESI Act. The letter dated 11.06.2018 under Annexure -16 classifies the loan account of the petitioners as 'live'. Therefore, the loan account cannot be termed as 'NPA' . The application by the Authorised Officer before the Opposite party No.2 supported by an Affidavit declaring the loan account of the petitioners as 'NPA' is a false statement. Hence, the impugned order is bad in law and as such liable to be setaside. The secured asset is the only
8
residential house of the petitioner No.2 to 5, wherein they reside with their families and the petitioners are ready and willing to pay the outstanding EMIs and pay the future EMIs . It is humbly submitted that the bonafide cannot be doubted as the petitioners in compliance with this Hon'ble Court's Order has deposited Rs.14,00,000/- within the extended time frame.
3. Counsel for the Respondent Company filed objection and contended that the respondent not being authorized to act under the provision of the SARFAESI Act, 2002, it is submitted that that the said contention vehemently denied in view of the judgment passed by the Hon'ble Supreme Court of India in matter titled "M.D. Frozen Foods Exports private Limited Vs Hero Fincorp Limited"
reported in (2017) 16SCC 741. In Para 38 of the said judgment Hon'ble Supreme Court has held that full bench of Orissa High Court in "Sarthak Builders Pvt. Limited vs Orissa Rural Development Corporation Limited & Others" has, in fact, succinctly set out this aspect.
Full bench of Hon'ble Orissa High Court in "Sarthak Builders Pvt. Limited vs. Orissa Rural Development Corporation Limited & Others" reported in 2014 SCC Online Or 75 while deciding the question of whether provisions of Securitization and Reconstruction of financial Asset and enforcement of Security Interest Act, 2002 can be invoked with reference to the loan transaction entered into prior to coming into force of the said Act held as follows:
9
"Accordingly, we answer the question in the affirmative and hold that the provision of SARFAESI Act apply to existing debts even if loan was advanced earlier. Similarly, as soon as by a notification of Central Government a financial institution is notified for purposes of Section 2(m), the machinery of the Act becomes available to recover any outstanding and legally recoverable debts even if such loan was advanced earlier. The view taken in Subash Chandra Panda is overruled. We express our agreement with the view taken un Unique engineering Works and Pradeep Kumar Gupta. The SARFAESI Act, 2002 was enacted to regulate
securitisation and reconstruction of financial assets and for enforcement of security interest and matters connected thereto. The Act enables the banks and financial institutions to realize long term assets, manage problems of liquidity, asset liability mismatch and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery and reconstruction. The RBI Guidelines expressly provide for restructuring of the advances and not regularization of accounts. In accordance with Clause 4.1.4 clause, No account shall be taken up for restructuring by the NBFC's unless the financial liability is established and there is reasonable certainty of repayment from the borrower, as per the term of restructuring package. Any restructuring done without looking into cash flow of the borrowers and accessing the viability of the projects/activities finance by NBFC's shall be treated as an attempt
10
at ever greening a week credit facility and shall invite supervisory concerns/actions". Thus since the Applicants/Borrowers have already been given ample opportunities by the Hon'ble High Court of Odisha at Cuttack to make requisite payments to the Respondent No. 1 in order to clear the overdue amount, and inspite of the said opportunities, the Applicants/Borrowers failed to clear the overdue amounts and the loan entire outstanding loan amount still stands due and payable by the applicants/Borrowers the same evidences that there is no reasonable certainty of repayment from the Applicants/Borrowers and thus in case any restructuring is allowed by the Respondent No. 1, the same shall be treated as an attempt at ever greening a week credit facility and shall invite supervisory concerns/actions at Respondent No.1's peril by RBI.
Reliance be placed upon "Chembeti Brahmaiah Chowdary Vs. State Bank of Hyderabad" In Writ Petition No. 22166 of 2009 decided on 13.04.2010, reported in 2010 SCC Online AP282 wherein it has been categorically stated that proceedings validly initiated under the provisions of the Act after a legitimate classification of an account as NPA cannot be interdicted by the contrivance of a borrower making payments with a view to bringing the account out of the NPA classification. Such an interpretation would frustrate the purposes of the Act.
Further reliance be placed upon judgment passed by the Hon'ble High Court of Madhya Pradesh in Writ Petition No. 5768,
11
5779 & 5781 of 2008 titled as Anu Stone Crusher etc. vrs. Bank of India Ors. Reported in AIR 2008 MP 244, wherein it was observed that the Borrower must discharge his full liabilities within the period specified in the notice and he cannot escape the action by making part payments. It is also to be noted that the definition of non-performing asset does not state that once the account of borrower is classified as such, it ceases to be non-performing asset if any payment made by the borrower thereafter towards the debt is adjusted in his account.
Section 13(2) of the SARFAESI Act, 2002 mandates the borrowers to discharge their liability in full within 60 days from the date of statutory demand notice.
Provisions of Section 26E of SARFAESI Act, 2002 which deals with effect of non-registration have still not been notified and are not in force. Further the registry in terms of the Act is still not functioning in the statutory manner so even in cases of non- registration with Central Registry of Securitization Asset Reconstruction and Security Interest of India a secured creditor can still continue to enforce the security interest till the time Section 26E of SARFAESI Act, 2002 will be notified and will become effective, which till date has not been notified and is not effective. Though even in cases of non-registration with Central Registry of Securitization Asset Reconstruction and Security interest of India a secured creditor can still continue to enforce the
12
security interest, the particulars of creation of security interest was filed with Central Registry and was duly registered.
4. Counsel for the Respondent No.2 filed objection and contended that the Authorised Officer of Respondent No. 1 i.e. "Aditya Birla Housing Finance Limited" Regd. Office at 1stfloor, Plot No. 191, ATM, Kharbela Nagar, Unit -III, Bhubaneswar, has filed a petition under Section 14(I) and (II) of the SARFAESI Act 2002 to take possession of the secured Assets as noted in the schedule of the S.A. No. 31 of 2019 and hand over the same to the petitioner/Respondent No. 1 due to non-payment of loan dues by M/s Sunita Traders represented through its partners as mentioned in SARFAESI Application No. 31/2019. No act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this Section shall be called in question in any Court or before any authority.
As such the SARFAESI Application is not maintainable, the respondent No. 2 has not violated any provision of the above said act. There is no provision under the SARFAESI Act, 2002, to serve notice on the Appellant (Borrower) on behalf of the Respondent No. 2. Service of notice on the borrower for taking physical possession of the secured asset is the duty of secured creditor, under Section 15(1), SARFAESI Act, 2002.
4. Heard both sides and perused the records.
5. The contention of the applicant is that the respondent not being authorized to act under the provision of the SARFAESI Act, 2002 is not correct in view of the judgment passed by the Hon'ble Supreme
13
Court of India in matter titled "M.D. Frozen Foods Exports private Limited Vs Hero Fincorp Limited" reported in (2017) 16SCC 741. In Para 38 of the said judgment Hon'ble Supreme Court has held that full bench of Orissa High Court in "Sarthak Builders Pvt. Limited vs Orissa Rural Development Corporation Limited & Others" has, infact, succinctly set out this aspect.
Full bench of Hon'ble Orissa High Court in "Sarthak Builders Pvt. Limited vs. Orissa Rural Development Corporation Limited & Others" reported in 2014 SCC Online Or 75 while deciding the question of whether provisions of Securitization and Reconstruction of financial Asset and enforcement of Security Interest Act, 2002 can be invoked with reference to the loan transaction entered into prior to coming into force of the said Act held as follows:
Accordingly, we answer the question in the affirmative and hold that the provision of SARFAESI Act apply to existing debts even if loan was advanced earlier. Similarly, as soon as by a notification of Central Government a financial institution is notified for purposes of Section 2(m), the machinery of the Act becomes available to recover any outstanding and legally recoverable debts even if such loan was advanced earlier. The view taken in Subash Chandra Panda is overruled. We express our agreement with the view taken un Unique engineering Works and Pradeep Kumar Gupta.
The contention of the Respondent Bank is that the SA is barred by Resjudicata. The appellant borrower filed several writ petitions before the Hon'ble High Court of Orissa and there is conditional order passed by the Hon'ble High Court and the appellant failed to comply the condition also and several Misc. Cases were filed for extension of time and time is also given and inspite of ample opportunity the appellant has not taken any step to pay the outstanding amount and regularize the same and on 15/03/3019 the appellant given a letter to the Respondent
14
Company and requested 15 days time to clear the amount and the said letter is also filed by the Respondent Company and as per undertaking dated 15.03.2019 counter signed by the Deputy Commissioner of Police in the presence of the Executive Magistrate, the applicant agreed to clear the total outstanding amount within 15 days and in case of his failure the appellant will peacefully surrender the physical possession of the remaining part of the asset also. As per the undertaking part of the property is taken and in contrary to the last undertaking the applicant filed this SA challenging 13(2) and 13(4) and Section 14 notice and the SA is barred by limitation. The amount due as per Annexure-4 is Rs.1,34,71,876/- on the date of filing of the SA and subsequently paid certain EMIs and the contention of the Respondent Company that the Court fee is also not paid and the appellant is liable to pay the Court fee of Rs.1.00 lakh and he paid only Rs.36,000/-. As per the decision reported in the case of Mardia Chemicals Limited Vs. Union of India AIR 2004 SC 2371 inter-alia observed that in a case where a secured creditor has taken action under Section 13(4) of the SARFAESI Act, 2002 (As has been taken in the instant matter) it would be open to borrowers to file appeals under Section 17 of the SARFAESI Act, 2002 within the limitation as prescribed therefore. In view of the above said judgment of the Hon'ble Supreme Court and also to discourage the borrowers to postpone the repayment of the dues and also enable the Secured Creditor to speedily recover their debts by enforcement of Security and other measures specified in 13(4) of the Act, 2002. That it is of the essence to mention that the Hon'ble High Court of Orissa at Cuttack has already given ample opportunities to be Appellants/Borrowers to make requisite payments to the Respondent No. 1 in order to clear the overdue amount, despite the Appellants/Borrowers failing to avail statutory remedy being available under the provisions of SARFAESI Act, 2002. However, in spite of the said opportunities, the Applicants/Borrowers failed to
15
clear the overdue amounts and in view of the same it is submitted that if the present application is allowed the same would be contravention to the statement of objects and reasons of SARFAESI Act, 2002.
Notice under Section 13(2) was issued on 04.05.2017 and after receipt of the notice the applicant failed to pay any amount then the Respondent Bank has taken steps for physical possession through District Magistrate's order and there are no irregularities found on the part of the Respondent Company. The action under SARFAESI Act is as per law and the Respondent company has followed the procedure as per law.
Since the Appellants/Borrowers have already been given ample opportunities by the Hon'ble High court of Orissa at Cuttack to make requisite payments to the Respondent No. 1 in order to clear the overdue amount, and in spite of the said opportunities, the appellants/Borrowers failed to clear the overdue amounts and the loan entire outstanding loan amount still stands due and payable by the Appellants/Borrowers the same evidences that there is no reasonable certainty of repayment from the Appellants/Borrowers and thus in case any restructuring is allowed by the Respondent No. 1, the same shall be treated as an attempt at ever greening a week credit facility and shall invite supervisory concerns/actions at Respondent No.1's peril by RBI.
In view of the aforesaid submissions reliance be place upon judgment passed by the Hon'ble High Court of Andhra Pradesh, Division bench in matter titled "Chembeti Brahmaiah Chowdary Vs. State Bank of Hyderabad" in Writ Petition No.22166 of 2009 decided on 13.04.2010, reported in 2010 SCC Online AP282 wherein it has been categorically stated that:
"Proceedings validly initiated under the provisions of the Act after a legitimate classification of an account as NPA cannot be interdicted by the contrivance of a borrower making payments with
16
a view to bringing the account out of the NPA classification. Such an interpretation would frustrate the purposes of the Act".
Further reliance is placed upon judgment passed by the Hon'ble High Court of Madhya Pradesh in writ petition No. 5768, 5779 & 5781 of 2008 titled as Anu Stone Crusher etc. v. Bank of India Ors. Reported in SIR 2008 MP 244, wherein it was observed as under:
"7........ Thus, for the borrower to avoid an action under sub-Section
(4) by the bank, he must discharge his full liabilities within the period specified in the notice and he cannot escape the action by making part payments.
6. This Tribunal found that the notices under Section 13(2) and 13(4) were issued and subsequently physical possession was taken pursuant to the order of the Collector, Cuttack. There is no any irregularity committed by the Respondent No.1 in taking action under SARFAESI Act and Respondent No.1 has taken action under SARFAESI Act as per law. The main contention of the applicants are that they are paying EMIs till date and only one EMI is due and due to financial crunch they were irregular in their payment. They deposited the amount as per the direction of the Hon'ble Court and further contention of the applicant is that he had already deposited the EMI till August 2019 and prayed this Tribunal to direct the Respondent No.1 to regularize the account of the applicants. Considering the submission of both the Counsels and the contentions raised, this Tribunal found that there are no merits in this appeal and the Respondent Company has taken steps as per
17
law and no irregularity has been committed by the Respondent Company. Accordingly SA No.31/2019 is dismissed without cost. Considering the submission of the applicant and to give an opportunity to the applicant to clear the total outstanding dues of the Respondent Company and taking principles of natural justice into consideration and as per the decision reported in AIR 1999 SC 3426 between Allahabad Bank Vrs. Radha Kirishna Maity and Vol.108 CLT 451 Gobinda Chandra Pattnaik Vrs. PO, DRT & others wherein it is held that Recovery of Debts Due to Banks and Financial Institutions Act (51 of1993), Ss 19(6), 22-Interim order-power of Debt Recovery Tribunal to pass-Not limited to stay or injunction enumerated in sub-cl.(6) of S.19-Tribunal even has wider powers than Civil P.C.-However, has to observe principles of natural justice, Applicant is directed to clear the total outstanding dues of the Respondent Company within twelve months from the date of this order i.e. on or before 13.09.2020, failing which the Respondent Company is at liberty to take steps as per law for recovery of their dues. Respondent Company is directed to deliver the property which is taken in possession by the Respondent Company after payment of 50% of the total outstanding dues of the Respondent No.1 by the applicants.
With the aforesaid observation SA is dismissed without cost.
(P. Ravi Kiran) B. Com., M.L. Presiding Officer