V. Surendra Babu, vs The Andhra Pradesh State ...
2021 Latest Caselaw 1698 AP

        THE HON'BLE SRI JUSTICE JOYMALYA BAGCHI
                          AND
          THE HON'BLE SRI JUSTICE M.GANGA RAO

                 WRIT PETITION No.6848 of 2021
                 (Taken up through video conferencing)

ORDER: (Per Hon'ble Sri Justice Joymalya Bagchi)


      Petitioner is the son of the Managing Director of the second

respondent-Company         which   had   taken     loan    from    the     first

respondent-Financial Corporation. Having defaulted in payment of

the loan, first respondent-Corporation invoked the provisions of the

Securitisation and Reconstruction of Financial Assets &

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

SARFAESI Act') and issued notice under Section 13(2) of the

SARFAESI Act and proceeded to take steps under Section 13(4) of

the SARFAESI Act with regard to the secured asset of the

guarantor i.e., its Managing Director.

Learned Senior Counsel appearing for the petitioner

contends that the Managing Director of second respondent-

Company had passed away on 09.02.2017 and his client is the

legal heir to the secured asset. He has challenged the auction

notice issued by the first respondent in respect of the secured asset

on the following issues:

a). Respondent-Corporation is governed by the State

Financial Corporations Act, 1951 (for short, 'the Act of 1951') and

therefore, it is not empowered to take steps in respect of the

property mortgaged by the guarantor with regard to the loan

advanced under the SARFAESI Act. In this regard he refers to 2 JB,J & MGR,J wp_6848_2021

Karnataka State Financial Corporation Vs. N.Narasimahaiah

and Others1.

b). Notice under Rule 8(6) of the Securitisation and

Reconstruction of Financial Assets & Enforcement of Security

Interest Rules, 2002 (for short, 'SARFAESI Rules') had not been

issued upon the borrower.

c). As the surety had died, steps cannot be taken in respect

of the mortgage created by him.

Learned counsel appearing for the first respondent-

Corporation at the outset submits that the petition is not

maintainable due to existence of alternative remedy. He further

submits the first respondent is a Financial Institution under

Section 2(c) of the SARFAESI Act and therefore, it is empowered to

proceed under the SARFAESI Act against the secured asset. It is

further submitted notice was issued upon the borrower under Rule

8(6) of the SARFAESI Rules and after due compliance, the property

had been put up for auction. Petitioner was fully aware of such

events and had in fact approached the first respondent to repay the

outstanding dues through One Time Settlement (OTS) whose

terms, however, he failed to comply. Hence, the writ petition is

liable to be dismissed.

As the first issue raised by the learned Senior Counsel

relates to the jurisdiction of the first respondent to invoke the

provisions of the SARFAESI Act, we are of the opinion this Court

may entertain the writ petition to examine the same

notwithstanding existence of alternative remedy. It has been

vehemently argued before us that the first respondent-Financial

(2008) 5 SCC 176 3 JB,J & MGR,J wp_6848_2021

Corporation being governed by the provisions of the Act of 1951 is

not empowered to take steps with regard to the properties of the

sureties/guarantors. In this regard, reference has been made to

Section 29 of the Act of 1951 and interpretation thereof in

Karnataka State Financial Corporation's case (supra). While

admitting that the first respondent is notified as a Financial

Corporation under the SARFAESI Act, learned Senior Counsel

argues the aforesaid special law governing the Financial

Corporation would override the provisions of the SARFAESI Act. In

this regard, he refers to Section 37 of the SARFAESI Act and

submits that the provisions of the Act of 1951 will prevail over the

SARFAESI Act. Hence, the first respondent-Corporation is not

empowered to take steps in respect of the secured assets of the

guarantor offered as mortgage to it under the SARFAESI Act.

Although such argument which appears to be attractive at

the first blush, a deeper analysis of the two legislations would show

there is no inconsistency between them so as to denude a

Financial Corporation from taking steps under the SARFAESI Act

with regard to secured assets of the guarantor. Sections 29, 31

and 32(g) of the Act of 1951 provide for various avenues for

recovery of loans advanced to Industrial Corporations by State

Financial Corporations under the said Act.

Interpreting the aforesaid provisions, the Hon'ble Apex Court

in Karnataka State Financial Corporation's case (supra) held

that the scope and ambit of Sections 29 and 31 of the Act of 1951

while empowering the Corporation to take steps against the

properties of the industrial concern, did not empower the Financial

Corporation to proceed against the properties of the

guarantor/surety even if such guarantor was a Director of the 4 JB,J & MGR,J wp_6848_2021

industrial company. However, the said report is not an authority

for the proposition with regard to the powers of the Financial

Corporation which is notified as a Financial Institution under the

SARFAESI Act. It is settled law that a judgment is an authority for

the proposition that it decides and not what logically follows

therefrom. Learned Senior Counsel has referred to Section 37 of

the SARFAESI Act to bolster his argument that in view of the

absence of any provision under the Act of 1951 empowering the

State Financial Corporation to take steps against the properties of

the surety/guarantor, no such power can be vested upon it

through the SARFAESI Act. He submits the Act of 1951 is a

special law and would prevail over the SARFAESI Act. We are

unable to accept such proposition. We do not find any conflict

between the provisions in the two legislations. Sections 29, 31 and

32(g) of the Act of 1951 provide for various recourses available to a

Financial Corporation under the said Act to recover its dues. The

said provisions do not create any embargo on the Financial

Corporation from taking steps under any other law like SARFAESI

Act. In fact Section 37 of the SARFAESI Act read in its proper

perspective clarifies such position. Once the Financial Corporation

is notified as Financial Institution under the SARFAESI Act, it

would be empowered to exercise the powers under the SARFAESI

Act in addition to the powers already vested in it under the Act of

1951. Provisions of the Act of 1951 do not override or come in

conflict with those under SARFAESI Act. On the other hand, they

are to the harmony enhancing the powers of the Financial

Corporation to recover its dues. Since there is no conflict between

the provisions of the two legislations exercise of powers by the

Financial Corporation under the SARFAESI Act cannot be said to 5 JB,J & MGR,J wp_6848_2021

be in conflict with the provisions of the Act, 1951. Thus, the steps

taken by the Corporation under the SARFAESI Act with regard to

the secured assets in our estimation is wholly within its

jurisdiction and no interference in writ jurisdiction is called for on

such score.

With regard to the other issues relating to compliance of

provisions of SARFAESI Rules, it is contended on behalf of the first

respondent that notice had been issued upon the borrower and the

petitioner as the legal heir of the guarantor was fully aware of the

facts and circumstances relating to the account of the second

respondent-company being declared as Non-Performing Asset (NPA)

and had resorted to negotiations for repayment of the amount to

the bank by availing OTS schemes. This is, however, disputed by

the petitioner. As the other issues relate to disputed questions of

fact and do not impinge on the inherent jurisdiction of the first

respondent to proceed under SARFAESI Act, we observe it may be

open to the petitioner to approach the Debts Recovery Tribunal,

Visakhapatnam, to agitate his grievances therein in accordance

with law, if so advised.

With these observations, the Writ Petition is dismissed.

No order as to costs. As a sequel, Miscellaneous Petitions, if any,

pending in the Writ Petition shall stand closed.

______________________________ JUSTICE JOYMALYA BAGCHI

_________________________ JUSTICE M.GANGA RAO

Date: 23.03.2021 Ivd