2006(2) ALL MR 218
IN THE HIGH COURT OF JUDICATURE AT BOMBAY(NAGPUR BENCH)
F.I. REBELLO AND N.A. BRITTO, JJ.
Shri. Wardhaman S/O. Samjibhai Dharamsi & Anr.Vs.Bank Of Maharashtra
Writ Petition No.2415 of 2005
11th August, 2005
Petitioner Counsel: Shri. SHANTANU KHEDKAR
Respondent Counsel: Shri. A. A. BADE
(A) Recovery of Debts Due to Banks and Financial Institutions Act (1993), S.19 - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (2002), S.13(4)(10) - Recovery of loan granted to party - Proceeding initiated by Bank under Debt Recovery Act and pending - Bank can move under Securitisation Act - There is no bar.
Where a Bank has initiated proceedings under Debt Recovery Act for recovery of loan granted by it to a party, during pendency of those proceedings the Bank in entitled to move also under the provisions of Securitisation Act against the party. [Para 10]
A perusal therefore of the provisions of the R.D.B. Act and Securitisation Act would make it clear that the provisions of the Securitisation Act are in addition to and not in derogation of the provisions of the R.D.B. Act. There is no express provision in R.D.B. Act or the Securitisation Act which prohibits taking remedy under the provisions of the Securitisation Act if proceedings have been instituted under the R.D.B. Act. On the contrary, section 13(10) provides that the secured creditor whose debts are not fully satisfied can move under the provisions of the Securitisation Act by filing an application to the D.R.T. having jurisdiction or a Competent Court, as the case may be. [Para 9]
(B) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (2002), S.13 - Loan amount released on basis of guarantee - Guarantee signed by party and handed over to Bank - Loan amount released by Bank - Mere non-signing of Guarantee by Bank Officers does not result in holding that there was no concluded contract. (Para 7)
(C) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (2002), S.13 - Bank granting loan to party on basis of mortgage of property - Recovery of debt - Relief sought for sale of mortgaged property - Period of limitation is 12 years - Proceedings held were within limitation. (Para 7)
A. P. State Financial Corporation Vs. GAR Re-Rolling Mills, A.I.R. 1994 S.C. 2151 [Para 4,5]
Unique Butyle Tube Industries (P) Ltd. Vs. U. P. State Financial Corporation, 2003(1) ALL MR 1196 (S.C.)=2003(2) S.C.C. 455 [Para 4,5,9]
Allahabad Bank Vs. Canara Bank, 2000(3) ALL MR 475 (S.C.)=2000(4) S.C.C. 406 [Para 8]
Mardia Chemicals Vs. Union of India, 2004(5) ALL MR 484 (S.C.)=2004(4) S.C.C. 311 [Para 10]
Hotel Rajahamsa International Governorpet, Vijayawada Vs. Authorised Officer, Indian Overseas Bank Governorpet, Vijayawada, 2004(2) D.R.T.C. 956 (A.P.) [Para 10]
"Is a secured creditor entitled to move under the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "Securitisation Act"), if proceedings have already been initiated and are pending under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as "R.D.B. Act")" and without withdrawing those proceedings?"
3. To answer the issue, a few facts may be set out. The respondent bank has initiated proceedings under the R.D.B. Act bearing O.A. No.254 of 2001. Petitioner No.1 is guarantor and petitioner No.2 is principal Debtor. The proceedings are pending before Debts Recovery Tribunal, Nagpur (hereinafter referred to as "D.R.T."). The case of petitioner No.1 is that he has specifically taken a stand in the proceedings bearing O.A. No. 254 of 2001 that he has no obligation to pay any amount to the respondent. This contention is based on the assumption that there are no signatures of the Bank officials on the guarantee deed and as such there was no contract between the Respondent Bank and the petitioner No.1 and consequently no liability can be fastened on him. An order came to be passed on 2-4-2004. On this contention raised by the petitioners which is dated 2-4-2004 the matter was adjourned to 16-4-2004.
When the matter was pending before the D.R.T. and though according to the Petitioners there were serious disputes in the matter of recovery of the alleged dues towards repayment of the alleged loan to petitioner No.2, the respondent bank issued notice under section 13(2) of the Securitisation Act dated 21-7-2004. By the notice the petitioners were called upon to pay an amount of Rs.9,42,421/- plus interest @ 16.50% w.e.f. 1-4-1995 within a period of 60 days from the date of receipt of the notice failing which the Respondent Bank threatened to take action under section 13(4) of the Securitisation Act. The petitioners on receipt of notice dated 21-7-2004 replied to the same by the reply dated 1-10-2004. Various objections were taken as to why the respondent bank ought not to take action and ought to withdraw the notice. It is the case of the Petitioners that the respondent without taking into consideration the contention as urged by the petitioners by the letter dated 20th October, 2004 rejected the contentions raised by the petitioners in their reply dated 1-10-2004. The contention of the petitioners is that the reply was sent without application of mind.
The Respondent thereafter, pursuant to the notice dated 21-7-2004, issued under section 13(2) of the Securitisation Act, took symbolic possession on 10-11-2004 of the property which the Petitioners contend was allegedly mortgaged with the Respondent. The petitioners have signed documents/possession letter and a list of inventories without prejudice to any of their rights. The petitioners preferred an appeal before D.R.T. bearing Appeal No.1/2004. By the appeal the petitioners are challenging the action on the part of the respondent bank of issuing notice dated 21-7-2004 under the Act and also action taken pursuant thereto. Interim relief was granted by D.R.T. staying operation of the measures and action taken under section 13(4) of the Act. On being served, the respondent bank has put in appearance and filed their reply. The learned Presiding Officer, D.R.T., Nagpur heard the Counsel for the petitioners and the respondent on 4-5-2005 and passed judgment and order on the same date dismissing the appeal preferred by the petitioners. It is this order which is the subject-matter of the present petition.
4. At the hearing of this appeal, on behalf of appellant, their learned Counsel has submitted, firstly, that it was incumbent on the respondent bank to elect one of the two remedies available either under R.D.B. Act or Securitisation Act and it was not permissible to prosecute proceedings under two different laws for the recovery of the amount allegedly due in relation to the same transaction.
It is secondly contended that the learned Presiding Officer of D.R.T. mis-interpreted the judgment of the Apex Court in A. P. State Financial Corporation Vs. GAR Re-Rolling Mills & another, A.I.R. 1994 S.C. 2151 and in Unique Butyle Tube Industries (P) Ltd. Vs. U. P. State Financial Corporation & others, 2003(2) S.C.C. 455 : 2003(1) ALL MR 1196 (S.C.) by holding that the ratio laid down in the case was not applicable to the present case. It is submitted that the conclusion arrived at by the D.R.T. are totally incorrect and unsustainable in law. It is also submitted that the learned Presiding Officer erred in law that the dispute as to signatures on the guarantee deed not have bearing on the action taken by the respondent bank under the provisions of the Securitisation Act, as the transaction and the claim was in dispute. The learned Tribunal erred in holding that the controversy in the Original Application had no bearing in relation to the action initiated by the respondent bank under the Act. On that count also it is the contention of the petitioners that the order of the learned Single Judge ought to be set aside. The proceedings, under the Securitisation Act it is submitted, were beyond the prescribed period of limitation and will not have been instituted bearing section 36 in mind.
No reply has been filed on behalf of the respondent bank but the reply was filed to the appeal preferred under section 17 of the Securitisation Act, before D.R.T. It is the submission of the respondent that considering section 35 of the Securitisation Act, the provisions of the Securitisation Act override the provisions of any other laws to the extent it will be inconsistent with the law. The R.D.B. Act and Securitisation Act are independent Acts and remedies provided thereunder are different. It was denied that the measures taken by the respondent under section 13(4) of the Securitisation Act are illegal. It is pointed out that the loan was sanctioned to M/s. G.D. Stainless Industries, a proprietory concern. The petitioners herein executed a guarantee and the petitioner No.1 herein created equitable mortgage on the property bearing Plot No.4/27. The petitioners had executed an acknowledgement and balance confirmation. The suit was filed by respondent on 29-9-1997 which was very well within limitation. Even otherwise it is pointed out that the relief being for sale of mortgaged property for which the mortgage was created in 1994 the limitation is 12 years and consequently the action taken under the Securitisation action is within limitation.
5. The learned Presiding Officer of D.R.T. held that in the judgments relied upon by the petitioners the issue as to whether the proceedings can be initiated under section 13 of the Securitisation Act was not in issue and the observations in M/s. GAR Re-Rolling Mills (supra) was considering the provisions of sections 29 and 31 of the State Financial Corporations Act. The judgment was differentiated. Similarly judgment in Unique Butyle Tube Industries Vs. U. P. Financial Corporation & others [2003(1) ALL MR 1196 (S.C.)] (supra) was distinguished. The learned Presiding Officer relied on the order passed by the Chairperson of the D.R.T., Chennai in R.A. No.10 between Asset Reconstruction Company India Vs. Kumar Metallurgical Corporation & two others and in R.A. No.11/2005 between M/s. Manaksia Ltd. Vs. Kumar Metallurgical & another, where the Chairperson had held that the bank can take recourse to the provisions under the Securitisation Act even after Original Application is filed for recovery of money. Considering the question raised on limitation it was held that the loan was sanctioned in the year 1994. The suit was filed in 1997. Amongst other reliefs prayed was the relief of sale of mortgaged property for which limitation provided is of 12 years and consequently rejected that contention.
a) Was it open to the respondent bank to proceed under both, R.D.B. Act and Securitisation Act or it had to elect to proceed either under one of them.
b) As the entire action is based on the guarantee, which deed was not signed by the respondent bank there was no liability of the petitioner No.1 and consequently no relief could have been sought against petitioner No.1 in respect of the mortgaged property and as such the proceedings are without jurisdiction, and
c) The claim under the Securitisation Act considering section 36 had to be made within the period of limitation prescribed under the Limitation Act. In the instant case the claim being for money are barred under the provisions of the Limitation Act.
7. We may first deal with the second and third contentions. In so far as second contention is concerned, no doubt it was in issue in the proceedings under O.A. No.254 of 2001. That also could have been considered in the appeal filed under the provisions of the Securitisation Act. Even otherwise the petitioners do not deny that they had signed the Bank Guarantee. The only contention is that the Respondent Bank had not signed the Bank Guarantee. Once the Guarantee was signed by the petitioners and handed over to the Respondent Bank and based on which moneys were released, mere non-signing by the bank cannot result in holding that there was no concluded contract merely because signature of the officer of the Bank was not appealed (sic - appended). That contention must therefore be rejected. Even otherwise considering section 13(ii) it is open to the secured creditor to proceed against the security without taking any of the measures specified in Clauses (a) and (b) of sub-section (4) in relation to the secured asset under the Act. In so far as limitation is concerned clearly as the relief is for the sale of mortgaged property limitation is of 12 years and consequently the notice served under section 13 was maintainable. The loan was granted as noted earlier. The loan was sanctioned in the year 1994, suit was filed in 1997, notice under section 13 was issued on 21-7-2004. The limitation as provided in Schedule under Entry No.62 provides period of 12 years for sale of the mortgaged property and consequently that contention must be rejected.
8. Having said so, we may now consider the provisions, firstly, of the R.D.B. Act and then the Securitisation Act. What would be material is section 19(1) with the proviso as inserted by the Amendment Act 30 of 2004 w.e.f. 11-11-2004. The relevant portion of the proviso reads as under :
"Provided that bank or Financial Institution may, with the permission of the Debts Recovery Tribunal, on an application made by it, withdraw the application, whether made before or after the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 for the purpose of taking action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), if no such action had been taken earlier under that Act."
By virtue of section 22(1) the Tribunal and the Appellate Tribunal are not bound by the procedure laid by the Code of Civil Procedure but shall be guided by the principles of natural justice and, subject to the other provisions of the Act and of any Rules. The Tribunal and the Appellate Tribunal shall have powers to regulate their own procedure including the places at which they shall have their sitting. Certain specific powers have been conferred by section 22(2) as are vested in the Civil Court under the Code of Civil Procedure. Section 34 provides that under sub-section (2) the provisions of the Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than the Act. Sub-section (2) provides that the provisions of the Act and the Rules made thereunder shall be in addition to, and not in derogation of the various Acts as set out therein. This section had come up for consideration before the Apex Court in Allahabad Bank Vs. Canara Bank, 2000(4) S.C.C. 406 : [2000(3) ALL MR 475 (S.C.)]. The issue there was, whether the provisions of the Companies Act, 1956 override the provisions of R.D.B. Act. The Apex Court has held after considering the various provisions including section 34, that the R.D.B. Act overrides the provisions of the Companies Act, 1956.
We may then consider the provisions of the Securitisation Act, Section 13(10) reads as under :-
"Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a Competent Court, as the case may be, for recovery of the balance amount from the borrower."
Section 36 of the said Act sets out that :
"No secured creditor shall be entitled to take all or any of the measures under sub-section (4) of section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963."
Section 34 expressly bars the jurisdiction of the Civil Court in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine.
What is also relevant is section 37 which reads as under :
"The provisions of this Act or the Rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of the 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force."
9. A perusal therefore of the provisions of the R.D.B. Act and Securitisation Act would make it clear that the provisions of the Securitisation Act are in addition to and not in derogation of the provisions of the R.D.B. Act. There is no express provision in R.D.B. Act or the Securitisation Act which prohibits taking remedy under the provisions of the Securitisation Act if proceedings have been instituted under the R.D.B. Act. On the contrary, section 13(10) provides that the secured creditor whose debts are not fully satisfied can move under the provisions of the Securitisation Act by filing an application to the D.R.T. having jurisdiction or a Competent Court, as the case may be. If the arguments sought to be advanced on behalf of the petitioners are accepted, then a secured creditor will have to elect to either move under the Securitisation Act or R.D.B. Act. As we have noted earlier section 13 confers power on the secured creditor to enforce any security interest created in favour of any secured creditor without intervention of the Court or the Tribunal in accordance with the provisions of the Act. The secured creditors therefore, for that purpose need not move the Court or the Tribunal for recovery of the amount which was secured by any security interest. The security interest has been defined under section 2(zf) to mean, right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31. Secured asset means, the property in which the security interest is created. The recovery therefore, is not by intervention of a Court and/or Tribunal. The contention urged on behalf of the petitioners by the learned Counsel is that this may result in two conflicting orders and consequently the decree obtained under the R.D.B. Act or in case any order is passed in appeal under section 17 of the Securitisation Act would not be executable. We are afraid, it would not be possible to accept that contention. If the issue has been answered either under the provisions of R.D.B. Act in proceedings taken under that Act or in appeal preferred by the borrower under section 17 of the Securitisation Act the issue will no longer be open between the same parties in respect of the same subject-matter as the Doctrine of Estoppel will arise and/or the principle of res judicata. Therefore, in our opinion, the contention as urged on behalf of the learned Counsel is devoid of merits. The learned Counsel for the petitioner placed reliance on the judgment of the Apex Court in Unique Butyle Tube Industries (P) Ltd. Vs. U.P. State Financial Corporation & others, 2003(2) S.C.C. 455 : 2003(1) ALL MR 1196 (S.C.), to contend that considering the ratio of the said judgment it is not possible for a secured creditor to take recourse under both the Acts. In Unique Butyle Tube's case three Acts were in issue, R.D.B. Act, U.P. Public Moneys (Recovery of Dues) Act, 1972 and State Financial Corporations Act, 1951. The learned Division Bench of Allahabad High Court issued certificate under the U.P. Act. The Apex Court after considering section 34 of the R.D.B. Act observed that it is in addition to and not in derogation of certain statutes one of which is Financial Act. The Apex Court observed as under :
"Even a bare reading therein makes it clear that it is intended to be in addition to and not in derogation of certain statutes; one of which is the Financial Act. In other words, a bank or a financial institution has the option or choice to proceed either under the Act or under the modes of recovery permissible under the Financial Act."
After so holding the Apex Court held that in so far as the finding by the learned Bench of the Allahabad High Court that proceedings under the U.P. Act were permissible was wrong. We may at once note that considering section 37(2) of the Securitisation Act includes Recovery of Debts Due to the Banks and Financial Institutions Act, 1993. The remedy under the Securitisation Act is therefore, in addition to and not in derogation of the provisions of the R.D.B. Act. That recovery is by a non-adjudicating process. A creditor therefore, has a choice on moving either under the provisions of the Securitisation Act or the R.D.B. Act. If the borrower so moves then by virtue of section 35 the provisions of the Act have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of such law.
10. We may also examine the matter in another context. Section 36 specifically provides that the secured creditor is not entitled to take steps or measures under subsection (4) of section 13 unless his claim in respect of the financial assets is made within the period of limitation. Let us take an illustration, if the argument of the petitioners is accepted, once a creditor moves under the provisions of R.D.B. Act it will be impermissible for the creditor to move under the provisions of Securitisation Act. What is the effect of the proviso to section 19(1) as introduced w.e.f. 11-11-2004 will be considered subsequently. It cannot be possible to hold that the Securitisation Act whose very aim and object is speedy recovery on account of inability of financial institution to make recoveries under the R.D.B. Act should be frustrated. We may note that this was so noted by the Apex Court in Mardia Chemicals & others Vs. Union of India & others, 2004(4) S.C.C. 311 : 2004(5) ALL MR 484 (S.C.). We may gainfully refer to relevant portion of paragraph 34, which reads as under:
"Considering all these circumstances, the Recovery of Debts Due to Banks and Financial Institutions Act was enacted in 1993 but as the figures show it also did not bring the desired results. Though it is submitted on behalf of the petitioners that it so happened due to inaction on the part of the Governments in creating Debts Recovery Tribunals and appointing Presiding Officers, for a long time. Even after leaving that margin, it is to be noted that things in the spheres concerned are desired to move faster. In the present day global economy it may be difficult to stick to old and conventional methods of financing and recovery of dues. Hence, in our view, it cannot be said that a step taken towards securitisation of the debts and to evolve means for faster recovery of NPAs was not called for or that it was superimposition of undesired law since one legislation was already operating in the field, namely, the Recovery of Debts Due to Banks and Financial Institutions Act. It is also to be noted that the idea has not erupted abruptly to resort to such a legislation. It appears that a thought was given to the problems and the Narasimhan Committee was constituted which recommended for such a legislation keeping in view the changing times and economic situation whereafter yet another expert Committee was constituted, then alone the impugned law was enacted. Liquidity of finances and flow of money is essential for any healthy and growth oriented economy."
The other aspect as earlier noted is section 13(10) which specifically reserves right in secured creditor if dues are not fully satisfied to move under the provisions of the D.R.T. As an illustration, a secured creditor may have given a loan of Rs.Thirty Crores which was secured by some securities of which security interest may be to the extent of Rs. Ten Crores. Can it be said that the secured creditor must wait till the security is disposed of and money is realised to move D.R.T. under the R.D.B. Act. Various issues may arise, including bar of limitation. It therefore, cannot be said that the secured creditor must elect to move either under the Securitisation Act or under R.D.B. Act. If this view is not taken the very objective in enacting the Securitisation Act will be defeated. In Mardia Chemicals (supra) the Apex Court has upheld the constitutional validity of the Securitisation Act. On behalf of the respondent, their Counsel has drawn our attention towards the judgment of the learned Single Judge of the Andhra Pradesh High Court in Hotel Rajahamsa International Governorpet, Vijayawada & others Vs. Authorised Officer, Indian Overseas Bank Governorpet, Vijayawada & another, reported in 2004(2) D.R.T.C. 956 (A.P.). The learned Judge has taken a view that the procedure contemplated under section 13 of the Securitisation Act can be resorted to even if the bank has already availed the remedy under the R.D.B. Act.
11. That leaves us with the only question of what is the meaning to be assigned to the proviso. In the instant case, it has been pointed out that the proviso has come into effect from 11-11-2004. The proceedings before the D.R.T. are of the year 2001. Notice under section 13(2) was issued before that. Action under section 13(4) was taken on 10-11-2004 including possession. That would be a day earlier to the proviso coming into force. There can be two arguments. One that before the proviso came into force it was permissible to move under both the Acts and secondly because of the proviso a party has to elect his remedy. On the facts of the present case considering the date when the proceedings were initiated under the R.D.B. Act and notice and possession taken under the Securitisation Act the proviso would not apply. Assuming for a moment that the proviso applies, does the proviso lead to the inference that a creditor has to elect to move either under one of the two Acts. As noted earlier, the action under section 13 is without intervention of the courts. Considering section 37 r/w 35 it is open to a secured creditor to move under the Securitisation Act and there is no bar. Under the Securitisation Act the secured creditor will not be moving a Court for relief and no adjudicating process is involved. In so far as R.D.B. Act is concerned, it is a Tribunal on which certain powers under the Code of Civil Procedure have been conferred. If the proceedings initiated under section 19 had already been initiated then by virtue of the proviso as illustrated, liberty is given to the Financial Institution or the bank to move the D.R.T. to withdraw the application whether made before or after the amendment in the Securitisation Act, if no such action had been taken earlier. This is only an enabling power. The power is conferred on the Tribunal, whether to grant permission or not to grant permission. At the highest, therefore, all that can be said is that if a creditor had already applied under the provisions of section 19 of the R.D.B. Act then he cannot withdraw those proceedings except with the leave of the Court. Nowhere does section 19 expressly or impliedly bar the remedy of the creditor in moving under the Securitisation Act. This could not have been done considering the provisions of sections 35 and 37 of the Securitisation Act. As an illustration, if a creditor had sufficient securities as a secured creditor, instead of waiting for the outcome of the proceedings before D.R.T. he could choose to move for realisation of its due under the Securitisation Act. The proviso enables the financial institution to withdraw the application. If no such power is conferred the Tribunal even if the debt is satisfied would have to proceed to adjudicate the dispute or dismiss it on the ground that cause of action no longer survives. This would again require the Tribunal to spend valuable judicial time and it is in order to avoid this has the power been conferred on the Tribunal. That is the only meaning that can be assigned to the proviso. It is impossible to hold that the proviso restricts the right of the secured creditor to move under the Securitisation Act.
On behalf of the petitioners, their learned Counsel sought continuation of the stay granted by D.R.T. on 4-5-2005 and which was continued by this Court on 20th May, 2005. In our opinion, bearing in mind the object with which the Securitisation Act has been introduced, this would not be a fit case to grant continuation of interim relief and consequently the plea is rejected.
In the circumstances of the case, however, there shall be no order as to costs.