M/S Sri Kalyani Agro Products And ... vs Union Of India
2021 Latest Caselaw 2036 AP

       HON'BLE SRI JUSTICE U. DURGA PRASAD RAO

                    Writ Petition No.3059 of 2021

ORDER:

The petitioners prayed for writ of mandamus declaring the

action of the respondent bank in declaring the account of the

petitioner as NPA and initiating further steps including coercive

actions, as illegal and unconstitutional and consequently restrain the

respondent bank from acting further against the petitioners till the date

of realization of the legitimate pending dues of the petitioner from the

respondent TRANSCO while setting aside the decision of the bank

declaring the account of the petitioner as NPA and pass such other

orders.

2. The petitioners' case succinctly is thus:

(a) The 1st petitioner is power generating company as

defined in Section 2(28) of the Electricity Act, 2003 and engaged in

the business of the generation and sale of renewable energy through

transmission lines to APEPDCL sub-stations. The 1st petitioner uses

the rice husk to generate power which is a biomass source. The 6th

respondent is a Government owned Company which is entrusted with

the function of the distribution of electricity in the southern Districts

of the State of Andhra Pradesh. The petitioner company entered into

a Power Purchase Agreement (PPA) with 5th respondent (AP

TRANSCO) for take off of the entire 4 MW of energy generated by

the petitioner.

(b) The petitioner has taken loan of Rs.22.50 Crores towards

working capital from respondents 1 to 4 for MW biomass power

project. The Andhra Pradesh Electricity Regulatory Commission

(APERC) in exercise of its statutory powers conferred under Sections

61 and 86 r/w Section 181 of the Electricity Act, notified the Andhra

Pradesh Electricity Regulatory Commission (terms and conditions for

determination of tariff for wheeling and retail sale of electricity)

Regulations, 2005 (for short, 'Regulation 4 of 2005') and laid down

the norms for determination of the tariff of biomass power projects for

which PPAs would be executed during the control period of regulation

No.4 of 2005 and provided that Ld.APERC would determine and

notify a generic preferential tariff suo moto at the beginning of each

financial year for wind power projects as per the norms specified

thereunder.

(c) The petitioners have entered into PPA with APEPDCL

within the control period of regulation 4 of 2005. The petitioner

provided power supply to 6th respondent from 1st week of December,

2002 to December, 2013 as per PPA. As per PPA, there is escalation

clause of enhancement of 5% in every year. However, in the year

2004, the AP TRANSCO decreased the amount from Rs.3.68 ps per

unit to Rs.2.80 ps per unit due to which the petitioner suffered a loss

of Rs.0.80 ps per unit amounting to Rs.40 Crores. In this regard and

against not permitting the petitioner companies to sell power to third

parties, there arose disputes and several cases have been filed by

different parties. The AP TANSCO filed Civil Appeal Nos.1376-1385

of 2013 before the Hon'ble Supreme Court and the same are pending.

According to the petitioners, if the Hon'ble Apex Court finalize the

cases, they will get nearly more than Rs.40 Crores.

(d) While so, in the year 2009, upon the request of the

petitioner, respondent No.3 issued sanction letter dated 10.12.2009

and the competent authority had accorded approval for fresh credit

facilities aggregating to Rs.12 Crores and term loan of Rs.8.47 Crores,

warehouses limit of Rs.3 Crores, non-fund based credit of Rs.2 Crores

and LC limit of Rs.2 Crores totaling to Rs.25.47 Crores. Accordingly,

on 10.12.2009 the petitioner and respondent bank entered into

working capital facility agreement for the said amount of Rs.25.47

crores pursuant to the aforesaid sanction letter.

(e) Subsequently, the petitioner company discharged loan of

warehouse limit (WHR) of Rs.3 Crores, non-fund based loan of Rs.2

Crores, LC limit of Rs.2 Crores and closed the accounts.

(f) While so, an amount Rs.40 crores of the petitioner was

struck up with the AP TRANSCO. In the meanwhile, the 3rd

respondent declared the petitioner as Non-Performing Asset (NPA) in

April, 2013 and initiated coercive proceedings under the

Securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (for short, 'the

SARFAESI Act'). The respondent bank issued e-auction notice dated

02.01.2021 for sale of the plant and machinery of Raw and Boiled

Rice Mill unit, Co-Zen Power Plant Unit and Steel Plant unit. Now

the bank authorities are initiating steps for conducting e-auction of

plant and machinery for Rs.2.50 crores by making paper publication

on 02.01.2021. The petitioner came to know the said fact on

27.01.2021. The plant and machinery's value is more than Rs.50

crores. The entire cost of the project is more than Rs.120 crores.

Hence, the auction of such valued machinery for Rs.2.50 crores is

illegal. Immediately, the petitioner submitted representation dated

27.01.2021 to the respondent bank to stop e-auction of plant and

machinery in Raw & Boiled Rice Mill Unit, Co-Zen Power Plant Unit

and Steel plant Unit and requested to grant six months time to

discharge debt. However, the bank did not respond positively.

(g) The bank all the time was luring the petitioner with an

offer of OTS by calling petitioners for several meetings and seeking

several clarifications. However, offer was never materialized. In the

meanwhile, the bank declared the account as NPA and seeks to sell

the machinery for Rs.2.50 Crores.

Hence the writ petition.

3. Respondents 2 & 3 filed counter opposing the writ petition and

inter alia contending as follows:

(a) It is contended that except seeking relief against the

respondent bank, the petitioners have not made out any case against

the respondent bank. Hence, at the threshold, the writ petition is not

maintainable.

(b) It is contended that earlier the petitioner filed

W.P.No.29008/2013 with more or less similar allegations and the

same was dismissed by the common High Court of A.P. on

07.04.2014 with a direction to the petitioner to approach the Debts

Recovery Tribunal, if so advised. On that ground also the present writ

petition is not maintainable.

(c) It is further contended that the loan account of the

petitioners became NPA long back in the year 2013 and 2nd

respondent by following due process of law, issued notice under

Section 13(2) and later under 13(4) and assumed symbolic possession

of the property of the company on 29.08.2013. Further the 2nd

respondent filed application under Section 14 of the SARFAESI Act

before the District Magistrate, West Godavari District and got

delivery of physical possession of the property by virtue of the order

dated 12.01.2015. On 30.01.2015, through Tahsildar, Pentapadu, the

physical possession of the property was obtained. As no bidders

participated, the auctions held on 09.12.2015, 29.02.2016 and

30.06.2016 were not fruitful.

      (d)    Be that it may, the 2nd respondent bank filed

O.A.No.602/2015       before    the   Debts    Recovery     Tribunal,

Visakhapatnam for recovery of its dues against the petitioners. In

I.A.No.770/2015, the 2nd respondent sought attachment of the amount

payable by 5th respondent, APTRANSCO to the writ petitioner and on

01.12.2015 the DRT, Visakhapatnam passed orders directing the 2nd

respondent to get details of the pending bills and the amounts payable

by 5th respondent to the writ petitioner. Accordingly, 2nd respondent

addressed a letter to both the writ petitioner and 5th respondent on

05.12.2015 requesting the 5th respondent to furnish the details of the

amounts lying with it belonging to the petitioner. The 5th respondent

gave a reply dated 11.01.2016 stating that it did not owe any amount

and in turn, the petitioner has to pay Rs.1,03,80,717/- to the 5th

respondent Corporation.

(e) It is further contended that as the petitioner failed to pay

the amount due to 2nd respondent, the properties were got valued by

the approved valuer who opined that the machinery has lost its useful

life and can be sold as scrap only. As the maintenance charges for

safeguarding of the properties and the mortgage amount are mounting

up, the 2nd respondent issued a sale notice dated 10.12.2020 and later

caused paper publication in Indian Express Daily on 02.01.2021

fixing the date of e-auction of immovable properties as 10.02.2021, to

safeguard the interest of the Bank. The writ petitioner addressed a

letter dated 27.01.2021 requesting the 2nd respondent to stop the e-

auction. The 2nd respondent issued reply dated 05.02.2021 stating that

the amount due from the petitioner is Rs.86,95,01,153-30, as on

30.01.2021 and thereby refused to stop the e-auction. In the

meanwhile, the petitioner filed writ petition on 08.02.2021 and

obtained interim orders. E-Auction was held on 10.02.2021 at 11:00

A.M. and about 31 bidders participated in the auction and bid was

ended at 03.16 P.M. and the 2nd respondent received copy of the

orders passed by this Court at 03.06 P.M. As there was no chance for

the 2nd respondent to stop the auction, he stopped further proceedings

in obedience to the Court Orders.

(f) The 2nd respondent further submitted that he lodged

complaint with CBI against the 2nd petitioner and another director, V.

Pullaiah alleging that they committed fraud on the 2nd respondent and

same is pending with the CBI Court, Visakhapatnam as

C.C.No.16/2016. Another complaint was given by 2nd respondent on

27.03.2018 in RC.02(A)/2018 with CBI, Visakhapatnam and the same

is also pending. It is further contended that though in the affidavit of

the petitioner, he stated that Rs.3,16,51,632/- was paid in view of the

Supreme Court directions, the petitioner or respondent No.5 did not

remit the said amount into the loan account. In fact, after his loan

account was declared as NPA in 2013, the petitioner did not pay even

a single pie. The 2nd respondent is not a party in litigation between the

petitioner and 5th respondent. As the loan account was already

declared as NPA in the year 2013 and SARFAESI proceedings were

initiated, the writ petition is not maintainable and may be dismissed.

4. The petitioners filed reply affidavit with the following

averments:

(a) The contention of the respondents 2 & 3 that the writ

petitioners did not challenge any of the proceedings of the respondents

2 & 3 and that the contentions in the writ petition are specifically

relating to the petitioners and respondents 5 & 6, in which respondents

2 & 3 have no role is not correct.

(b) It is averred that the cause of action in WP.No.29008/2013

and the present writ petition are different. The issue of declaring

petitioners' account as NPA was not the subject matter in

W.P.No.29008/2013.

(c) After 2013, several court proceedings went on regarding

payment to be made by 5th respondent. The petitioners are waiting for

verdict of the Hon'ble Supreme Court. Once the case is finalized, the

petitioners will get more than Rs.40 Cr. from 5th respondent. Hence,

in this writ petition it is prayed the Court to appreciate that the 5th

respondent, which is a statutory authority, not paying dues to

petitioners in spite of suffering orders of the Court/Forum. However,

as there is no stay before the Hon'ble Supreme Court the Bank is

selling the valuable assets at throwaway price without following due

process of law. The worth of machinery is more than Rs.50 Crores,

but the Bank is going to conduct auction for a meagre amount of

Rs.2.50 Cr. There is a conspiracy and collusion in furnishing valuer's

report.

(d) The Bank authorities are aware of the Court's interim orders

well in advance as the petitioners have communicated the information

regarding the orders of this Court to respondent Bank on 09.02.2021

through emails and whatsapp. The bank officers received the same

and contacted the petitioners and asked them to furnish the copy of the

order assuring that they would stop e-auction proceedings. Next day

i.e., on 10.02.2021 at 11.30 A.M., the petitioners received the copy of

the order and the same was also served by way of emails to

[email protected], [email protected], [email protected],

[email protected] and [email protected] and whatsapp

application immediately. The officers contacted the petitioners and

informed that they were stopping the e-auction. They were personally

submitted in the office of Rajahmundry in the afternoon on

10.02.2021. Now, the respondent is contesting as if they did not

receive any order.

(e) The petitioners paid amounts and they are ready to file the

relevant papers. The bank authorities cannot give incorrect statements

about worth of the plant & machinery which is valued more than

Rs.50 Cr. and that the entire cost of the project is more than Rs.120

Cr. It is submitted that the classification of NPA is questioned in the

writ petition. The initial proceedings under the SARFAESI Act were

taken up on the basis of declaration of NPA. Just because some

actions are taken up belatedly, the initial action cannot get ratified

when it violates the law. Hence, the present writ petition. The Bank

which violates the RBI guidelines cannot complain against the

petitioners. Hence, the challenge to declaration of NPA can be done

in the present writ petition.

5. Heard arguments of learned counsel for petitioners Sri

K.S.Murthy, and learned Assistant Solicitor General of India

representing 1st respondent, and learned Senior Counsel Sri Satya

Prasad representing Sri M.Ravi Kumar, Standing Counsel for the

respondents 2 & 3.

6. At the inception, learned counsel for petitioners Sri K.S.Murthy

while admitting that earlier the petitioners filed WP.No.29008/2013

and the same was disposed of by the common High Court of A.P. on

07.04.2014 giving liberty to the petitioners to avail the statutorily

available efficacious remedy of filing appeal under Section 17(1) of

the SARFAESI Act, would however submit that the cause of action in

the said writ petition is different from the present one, inasmuch as,

the earlier WP.No.29008/2013 was filed questioning the notice dated

25.04.2013 issued by the respondent Bank under Section 13(2) of the

SARFAESI Act and the subsequent possession notice dated

29.08.2013 issued by the 3rd respondent therein under Section 13(4) of

the SARFAESI Act demanding the petitioner company to repay an

amount of Rs.22,42,99,403.40 ps with interest. He would emphasize

that the said writ petition was basically targeted against the procedural

illegalities in issuing notices under Sections 13(2) and 13(4) of the

SARFAESI Act, but in the said writ petition, the petitioners have not

challenged the action of the respondent Bank in declaring the

petitioners' account as NPA illegally. In the present writ petition, the

petitioners sought for writ of mandamus declaring the action of the

respondent Bank in declaring the account of the petitioners as NPA

and initiating further steps as illegal and for consequential reliefs.

Having regard to the fact that the relief sought for in the earlier writ

petition could be obtained by filing statutory appeal under Section

17(1) of the SARFAESI Act, giving such liberty to the petitioners, the

said writ petition was dismissed. However, the dismissal of the said

writ petition has no impact on the present writ petition for, in the

instant writ petition, the petitioners are questioning the very vitality of

the action of the respondents i.e., declaring the loan account of the

petitioners as NPA. Unless the respondent Bank is able to demonstrate

that such declaration of petitioners' account as NPA is legally tenable,

its consequential actions of seizing the assets of the petitioners and

putting them to auction cannot be said to be judicious. Nextly, he

argued that the petitioner is involved in power generation and AP

TRANSCO, which is a Government organization, with whom PPA

was entered into by the petitioners for selling the power generated by

them, owed large sums to the petitioners and in that context the

litigation is pending before the Hon'ble Supreme Court. The

petitioners hope to get a favourable judgment, in which case the

petitioners would get more than Rs.40 Cr. from the 5th respondent and

thereby they will be in a position to discharge the debt of the

respondent Bank. Without considering these aspects, the Bank has

unduly and illegally declared the petitioners' account as NPA and now

brought its asset to auction sale. It is against the guidelines of the RBI

and commercial practice. He thus prayed to allow the writ petition.

7. Per contra, learned Senior Counsel Sri Satya Prasad

representing Sri M.Ravi Kumar, Standing counsel for the respondents

2 & 3, while severely opposing the writ petition argued that the loan

account of the petitioners was declared as NPA long back in the year

2013 itself and thereafter the consequential proceedings under the

SARFAESI Act were initiated. Besides, the bank has also filed

O.A.No.602/2015 before the Debts Recovery Tribunal,

Visakhapatnam for recovery of its dues. Learned counsel argued that

since 2013, the petitioners have not paid a single rupee to the bank in

due discharge of the loan amount. If at all the petitioners were of the

view that declaration of their account as NPA was illegal, they ought

to have questioned the same by appropriate proceedings immediately

but they did not do so and only challenged the notices issued under

Sections 13(2) & 13(4) of the SARFAESI Act in W.P.No.29008/2013

and the said writ petition was dismissed by the common High Court of

A.P. by holding that the petitioners can pursue alternative and

efficacious remedy of appeal available under Section 17(1) of the

SARFAESI Act. The petitioners did not follow the same knowing

well that in case they filed appeal they have to deposit specified

amount for obtaining stay. Now that the Bank has brought its asset to

auction sale, the petitioners filed the instant writ petition as if they are

challenging the declaration of their loan account as NPA as illegal.

Learned senior counsel strenuously argued that the present writ

petition is aimed at further delaying the proceedings. In fact, by the

time interim order was received by the bank on 10.02.2021 at 3.06

P.M., auction was completed and therefore, it was mentioned that

further proceedings will be subject to the result of their writ petition.

Learned senior counsel vehemently argued that though the writ

petitioners harped that the declaration of their account as NPA is

illegal and against the guidelines of the RBI, they could not manifest

the same by filing the relevant material. He thus prayed to dismiss the

writ petition.

8. The point for consideration is whether there are merits in the

writ petition to allow?

9. Point: The admitted facts are that the petitioners have borrowed

loan from the 2nd respondent Bank for installation of biomass based

power generation plant. The petitioners' case is that they entered into

PPA with 5th respondent for supply of 4 MW power generated by

them and in that context they have to receive more than Rs.40 Cr.

from the 5th respondent and the relevant appeals are pending before

the Hon'ble Supreme Court. It is also their case that since the

petitioners are suffering with financial stringency, as their amounts are

stuck up in the hands of 5th respondent which is a Government

organization, the respondent No.2 ought not to have declared its loan

account as NPA and take up consequential proceedings. This is

precisely the grievance of the petitioners.

Though the argument of the petitioners apparently sounds good,

however, neither there is legal force nor logical strength in it. As

contended by the 2nd respondent, the Bank is not a party in respect of

the litigation between the petitioners and the respondents 5 & 6. The

contractual relationship between the petitioners and 2nd respondent is

governed by the terms of the loan agreement entered into by them.

Unless the terms contained a clause favourable to the petitioners that

till they get their due amounts from their purchasers, the Bank will not

take steps for recovery of the loan amount, the petitioners cannot

question the action of the respondent Bank from taking steps to realize

the loan amount, particularly when the petitioners failed to discharge

the loan amount. The petitioners have not placed on record any such

clause or term emanating from the loan documents. Nor did they

produce any guidelines said to be issued by RBI in that regard. So the

petitioners' contention is legally untenable. For another reason also

the writ petition is not maintainable. As rightly argued by the learned

senior counsel for the respondents 2 & 3, the account of the

petitioners was declared as NPA way back in 2013. The petitioners

did not challenge the same immediately, but only challenged the

notices under Sections 13(2) & 13(4) of the SARFAESI Act in

W.P.No.29008/2013. Admittedly the said writ petition was dismissed

in view of the availability of efficacious and alternative remedy of

appeal. So at this fag end when the e-auction was contemplated to be

held on 10.02.2021, the petitioners cannot challenge the legal validity

of declaration of their account as NPA. I find no merits in the writ

petition.

10. Accordingly, this Writ Petition is dismissed. No costs.

As a sequel, interlocutory applications pending, if any, shall

stand closed.

_________________________ U.DURGA PRASAD RAO, J 18.06.2021 krk / mva

HON'BLE SRI JUSTICE U. DURGA PRASAD RAO

Writ Petition No.3059 of 2021

18th June, 2021 krk / mva