SARFAESI, Debt Recovery & Banking Laws : Recent Important Decisions

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2. Pandurang Ganpati Chaugale vs. Vishwasrao Patil Murgud Sahakari Bank Ltd

(Delivered by Supreme Court on 05.05.2020)

Brief facts:

The court framed the following questions

• Whether co­operative banks both at the State level and multi­State level are 'banks' for applicability of the SARFAESI Act?

• Whether provisions of Section 2(c) (iva) of the SARFAESI Act on account of inclusion of multi­-state co­operative banks and notification dated 28.1.2003 notifying cooperative banks in the State are ultra vires

Ratio

• The co­operative banks under the State legislation and multi­-state co­operative banks are 'banks' under section 2(1)(c) of SARFAESI. The recovery is an essential part of banking; as such, the recovery procedure prescribed under section 13 of the SARFAESI Act, is applicable.

• The Parliament has legislative competence under Entry 45 of List I of the Seventh Schedule of the Constitution of India to provide additional procedures for recovery under section 13 of the SARFAESI with respect to co­ operative banks. The provisions of Section 2(1)(c)(iva), of SARFAESI, adding 'a multi­-state co­operative bank' is not ultra vires.
• Coopearative banks have to act under Banking Regulation Act with respect to banking business.

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3. K. Virupaksha vs. The State Of Karnataka

(delivered by Supreme Court on 03.03.2020) 

Brief facts

• Complainant filed complaint in Court of the Principal Civil Judge (Junior Division) and JMFC alleging that Officers of bank in connivance with auction purchaser had caused wrongful loss to Complainant.
• FIR was registered against Appellants for alleged offences punishable under Sections 511, 109, 34, 120-B, 406, 409, 420, 405, 417 and 426 of Code

Ratio

• The sanction of loan, creation of mortgage and the manner in which the sanctioned loan was to be released were all contractual matters between the parties.
• The Petitioner after dismissal of the application before the DRT filed the impugned complaint which appears to be an intimidatory tactic and an afterthought which was an abuse of the process of law.
• Entertaining the complaint and allowing the investigation to continue, would amount to permitting the jurisdictional police to redo the process which would be in the nature of reviewing the order passed by the Single Judge and the Division Bench in the writ proceedings by the High Court and the orders passed by the competent Court under the SARFAESI Act which was neither desirable nor permissible and the banking system could not be allowed to be held to ransom by such intimidation.

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4. Union Bank of India Vs Rajat Infrastructure Pvt. Ltd.

(delivered by Supreme Court on 02.03.2020)

Brief Facts

• SLP filed against the order of High Court holding that no pre-deposit is required for entertaining an appeal before DRAT as mandated by S. 18 of SARFAESI.
• Respondent – guarantor and mortgager – objected to the sale of the secured asset on the ground that it is for a low amount and there is collusion between the officers of the Bank and the auction purchaser.
• Order of DRAT challenged before HC and HC held that no pre-deposit is required for the reason under the impugned order, no decree has been passed or liability fixed.

Ratio

• The Court, while relying on the case of Narayan Chandra Ghosh vs. UCO Bank & Ors., held that DRAT Cannot Entertain An Appeal U/s 18 SARFAESI Act Without Insisting On Pre- Deposit.

• On the Contention of Respondent that he is not a borrower, the court held that a guarantor or a mortgagor, who has mortgaged its property to secure the repayment of the loan, stands on the same footing as a borrower and if he wants to file an appeal, he must comply with the terms of Section 18 of the SARFAESI Act.

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5. Standard Chartered Bank Vs MSTC Limited

(Delivered by Supreme Court on 21.01.2020) 

Brief Facts

• SCB filed an IA seeking a decree on admission against MSTC in recovery proceedings pending before the DRT Mumbai which was allowed.
• MSTC Appeal against the above Decree before DRAT and Review Petition before DRT.
• Rule 5A of the DRT Rules prescribes a 30 day limitation period for filing of a review application and MSTC filed its Review Application with a delay of 28 days.
• Subsequently, the Appeal was withdrawn by MSTC and MSTC instituted an application to condone the delay in filing of the Review Application.
• DRT dismissed the application for condonation of delay holding that it did not have the power to condone delay in filing of a review applications under the RDB Act.
• MSTC challenged the Order of DRT by filing a writ petition before the Bombay High Court which was allowed on 3 May 2019. SCB challenged the High Court's decision before the Supreme Court.

Ratio

• SC held that the Tribunal does not have the power to condone delay in filing of a review application.

• Section 5 of the Limitation Act and its provision to condone delay by Debts Recovery Tribunal u/s 24 of RDB Act apply only to review petitions and not to the original applications filed under Section 19 of RDB Act and not to review petitions.

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6. Trans Asian Industries vs. Jammu & Kashmir Bank Ltd

(Delivered by Delhi High Court on 28.02.2020) 

Brief Facts

• WP was filed challenging the order of CMM wherein it was directed that the order appointing Receivers shall stand extended for another three months, on the ground that u/s 14 of the SARFAESI Act, 2002, the CMM has to appoint the Receiver within a maximum period of 60 days from the date of the filing of the application and beyond the said period, no orders for appointing Receivers or extending their power can be passed.

Ratio

• After a period of 60 days, CMM does not lose the power to give effect to orders extending the term of Receivers, or to substitute a Receiver already appointed.

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7. Rahul Chaudhary vs. Andhra Bank delivered by Delhi High Court on 17.01.2020

 Brief Facts

• Writ Petition filed against the order of CMM appointing the Advocate as receiver to take possession of the secured assets

Ratio

• Delhi High Court held that there is no bar on the appointment of an Advocate as a 'Receiver' under the provisions of the SARFAESI Act.

• Section 14 (1A) in fact conferred discretion on the DM/CMM to appoint their subordinate officers as receivers. Therefore, it didn't bar the appointment of Advocates as such.

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8. Iifl Home Finance Ltd vs State Of Maharashtra delivered by Bombay High Court on 05.03.2020 

Brief Facts

• DM, Aurangabad refused to entertain S. 14 SARFAESI Application filed by the bank on the ground that he does not possess the authority u/s 14 of the SARFAESI Act and the authority vests with Chief Judicial Magistrate.

Ratio

• The jurisdiction of the Chief Metropolitan Magistrate and/or District Magistrate is concurrent.
• The use of the word, "or" in S.14 signifies that the Chief Metropolitan Magistrate and the District Magistrate both can exercise powers u/s 14 of the SARFAESI Act.

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9. L and T Housing Finance Ltd. vs The State of Maharashtra delivered by Bombay High Court on 09.01.2020 

Brief Facts

• Whether Section 243 of the Maharashtra Land Revenue Code, 1966 permits Collector or an Officer under the jurisdiction of the Collector appointed by the Collector as the authorized Officer under Section 14 of the SARFAESI Act, 2002 to take physical possession of a secured asset can demand processing fee/administrative costs/Setu fee to take possession of the secured asset mortgaged to a Bank or a financial institution which is entitled to take action under SARFAESI Act, 2002.

Ratio

• In discharge of duty under Section 14 of the SARFAESI Act, neither the Collector nor an Officer authorized by the Collector to take possession of his secured asset, can require the applicant to deposit any processing fee/administrative fee/Setu fee/costs.

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10. IFCI Ltd Vs Lucknow Municipal Corporation delivered by Allahabad High Court on 29.04.2020  

Brief Facts:

• Lucknow Nagar Nigam leased out the property to Uptron India Ltd. which was further mortgaged by Uptron to the Appellants.
• On default, SARFAESI action was taken and the property was put to auction.
• The Lessor, aggrieved by the auction sale filed a Writ Petition whereby, the Appellants were restrained from confirming sale proceedings.
• Lucknow Nagar Nigam terminated the lease.
• Present writ filed.

Ratio

• "Borrower" would cover any person or institution who claims any right in the secured asset as legal heir/successor/representative/assignee/attorney of "borrower" or "guarantor" and would also cover "any person" who by virtue of lawful agreement enters into the shoes of "borrower" or "guarantor". Expression "borrower" would also cover any person who is covered under Section 13 (4) (d) of the Act of 2002. As such, a person who is not in the category, as stated, would not be considered as "borrower".
• Person who is covered under the expression 'borrower' and "a person" who is covered under Section 13 (4) (d) of the Act of 2002 being "a person" aggrieved by the measures adopted by the secured creditor under Section 13(4) of the Act of 2002, can approach to the appellate forum provided under Section 17 of the Act of 2002.
• Lucknow Nagar Nigam neither the borrower not "any person" u/s 13(4)d and therefore cannot appeal u/s 17.

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11. Shakuntala Devi Jan Kalyan Samiti vs. State of U.P. delivered by Allahabad High Court on 28.01.2020

Brief Facts

• WP filed against the order of CJM.

Ratio

• Since in the statute itself there is no provision for giving opportunity of hearing in an action under Section 14 of the Act, the High Court cannot provide such opportunity of hearing to the writ petitioner.

• It is settled position in law that the Court ought to decide matters on the basis of law as it exists and declare the same instead on the basis of what law should be.

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12.   Krishna Enterprise vs. Axis Bank Ltd delivered by Hon'ble Calcutta High Court on 06.03.2020

Brief Facts

• S. 17 SARFAESI Application partly allowed and demand notice was quashed and the bank was asked to hand over the possession.
• On Appeal by the Bank in DRAT, the order of DRT was stayed.
• WP filed on ground that neither SARFAESI nor DRT Act empower the Appellate Tribunal to pass an order of stay.

Ratio

• The substantive powers which have been conferred upon the Appellate Tribunal by Section 20 and section 22 of the Act of 1993 by necessary implication also includes the power to stay the order appealed against to meet the ends of justice.

• If the Appellate Tribunal does not have the power to stay the order appealed against, the entire purpose of the appeal may be defeated if ultimately the order passed by the Tribunal is set aside.

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13. Travancore Devaswom Board vs The Deputy Examiner delivered by Kerala High Court on 19.05.2020 

Brief Facts

• Registration of a sale carried out under SARFAESI was denied by the Sub Registrar, after noticing entry of a statutory charge relating to value added tax in the tax receipt produced along with the sale certificate for registration.
• Question - Whether a secured creditor can claim priority for sale and payment over statutory charge holders, due under State enactment.

Ratio

• The provisions of SARFAESI Act and RDB Act (Section 26E of the SARFAESI Act and of Section 31B of the RDB Act) containing provisions commencing with non-obstante clauses and giving specific priority to secured creditors even over the taxes due from the Governments, will prevail over the Kerala Value Added Tax Act, 2003.

• A secured creditor in whose favour a security interest has been created thus has priority in sale and payment over all other statutory charge holders.

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14. Sanjeev Tiwari vs State Of Uttarakhand delivered by Uttarakhand High Court on 05.06.2020 

Brief Facts

• Bank proceeded under SARFAESI.
• Application filed by borrower u/s 156 (3) of CrPC to open an investigation into alleged possession of the plant without notice.
• Rejected on the ground that no criminal action can be taken once, SARFAESI proceedings have begun and rejection confirmed in revision.
• Present Petition u/s 482 CrPC

Ratio

• Matter already reached conclusion in the Writ Petition that the Bank did not lock the premises.

The Bank was taking recourse to S. 13 SARFAESI Act for the recovery of outstanding dues. If the measures were wrong and the company was aggrieved definitely, recourse to Section 17 of the SARFAESI Act could have been taken. Criminal prosecution cannot be allowed to be launched in such cases.

• Appl. u/s156 (3) does not disclose any cognizable offence. It appears to have been moved by the petitioner to pressurize the Bank so that they may, under fear of criminal prosecution, settle the Case with the petitioner on his terms.

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15.   Radiant Rubber Industries vs. State Bank of India delivered by DRAT, Kolkata on 15.01.2020 

Brief Facts

• SA filed by the borrowers allowed by DRAT. In the SA, the Appellant/Borrower also asked for damages.
• Appellant further moved an interlocutory application u/s 19 of SARFAESI for seeking damages which was partly allowed.
• Review filed by the Respondent banks in DRT against the above order on the ground of maintainability of S. 19 application which was allowed.
• Appellants/Borrower filed the present Appeal

Ratio

• If the borrower/guarantor has claimed damages in the S.A., then the same is required to be decided by the DRT or DRAT in the same proceedings and the S.A. applicant cannot file application under Sec. 19 of SARFAESI Act thereafter.

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16. Frost Infrastructure and Energy Ltd. vs. Indian Overseas Bank delivered by DRAT Allahabad on 27.01.2020 

Brief Facts

• Application for condonation of delay by the defendants was dismissed by the DRT and the written statement and counter claim were rejected, observing that they have already lost their right to file written statement or counter claim having failed to do so within 30 days and also in the additional 15 days from the date of receipt of original summons.
• Appeal by the defendants.
• It was argued that limitation is not applicable for filing of counter-claim

Ratio

Thus, even if, the term "counter claim" is not included in proviso to section 19(5)(i) of the RDDBFI Act, it does not make any difference and the stipulated period is applicable in both the cases for filing the written statement as well as the counter claim.

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(Pragati Aggarwal is an associati of Delhi-based law firm, R P Agrawal & Co)