Koneru Venu Madhav, vs M/S. Kotak Mahindra Bank Private ...
2022 Latest Caselaw 8013 AP

       THE HON'BLE SRI JUSTICE C.PRAVEEN KUMAR

                                  AND

THE HON'BLE SRI JUSTICE TARLADA RAJASEKHAR RAO

               Writ Petition No.10056 of 2022


ORDER:- (per the Hon'ble Sri Justice C. Praveen Kumar)


1)     The present Writ Petition came to be filed, seeking to

declare the action of the respondent in issuing notice dated

28.12.2021 and trying to take physical possession of the

property bearing Door No.40-25-11/15, present Door

No.40-25-42, situated at Koneru Chenna Kesava Rao

Street, Patamata Lanka, Vijayawada without following the

procedure contemplated under the provisions of

Securitization and Reconstruction of Financial Assets and

Enforcement of Securities Interest Act, 2002 [for short,

"SARFAESI Act"] and Rules and without extending time for

compliance of OTS Scheme issued on 21.02.2022 as illegal,

improper and incorrect.

2) The facts, in issue, are as under:-

a) The petitioners herein obtained two Agri Term Loans

from the respondent bank in the year 2015 for the purpose

of agricultural activities. In January, 2018 the respondent

CPK, J & TRR, J W.P.No.10056 of 2022

bank declared the loan accounts of the petitioners as Non-

Performing Assets [NPA] and accordingly initiated

proceedings under SARFAESI Act by issuing the notice

under Section 13(2) of the Act on 22.01.2018, to the

Guarantor. The notice was served on the two petitioners,

but not on the Guarantor. On coming to know about

initiation of proceedings, the Guarantor paid an amount of

Rs.19,00,000/- to regularize the loan account from NPA

status. But, however, the respondent bank initiated

further proceedings to obtain physical possession of the

secured assets. Hence, the Guarantor approached the

Debt Recovery Tribunal at Visakhapatnam vide

S.A.No.249/2018 challenging the illegal acts committed by

the respondent bank.

b) Before the DRT, Visakhapatnam, the respondent

bank filed a Memo stating that the bank is withdrawing the

Possession Notice dated 10.05.2018 in respect of the two

loan accounts and accordingly the said S.A. was dismissed

as infructuous. Meanwhile, the respondent bank again

issued a fresh Possession Notice under Section 8(1) of

SARFAESI Act to the petitioners and thereafter, issued a

Paper Publication on 28.12.2021.

CPK, J & TRR, J W.P.No.10056 of 2022

c) While so, the respondent bank has come up an OTS

proposal. To close the pending two Agri loan accounts, the

petitioners agreed for OTS and submitted an application for

OTS by making payment of Rs.25,00,000/- i.e.

Rs.12,50,000/- to each of the loan account. It is said that

the bank accepted the proposal and accepted the part

payment and granting time till 28.02.2022 to clear the

balance agreed amount i.e. about Rs.37,50,000/- for each

loan account. It is said that thereafter both the petitioners

were infected with the COVID and as such, sought time, for

payment of the amount. At that point of time, the

respondent bank moved an application before the Chief

Metropolitan Magistrate to take the Physical Possession of

the asset without following the mandatory provisions under

Section 13(2) and 13(4) of the Act. An Order came to be

passed by the Chief Metropolitan Magistrate to that effect,

which lead to filing of present Writ Petition.

3) (i) A counter came to be filed on behalf of the

respondent disputing the averments made in the affidavit

filed in support of the writ petition. One of the main

objections taken is as to the maintainability of writ petition

when there is an alternative remedy of appeal under

CPK, J & TRR, J W.P.No.10056 of 2022

Section 17 of the SARFAESI Act to the DRT,

Visakhapatnam. It is further stated that no Writ Petition is

maintainable against private bank, as it does not fall under

Article 12 of the Constitution of India. Learned counsel for

the Respondent relied upon a Judgment of Hon'ble

Supreme Court in Phoenix ARC Private Limited V.

Vishwa Bharati Vidya Mandir & Ors1, in support of the

said plea.

(ii) It is further stated that when the owner of the

property does not challenge the action of the bank under

the provisions of SARFAESI Act, guarantor, who has

nothing to do with the property is not entitled to challenge

the same. On merits, it is stated that issuance of single

notice in respect of two loans taken by two different

persons, who are none other than the wife and husband is

perfectly justified and there is no illegality or irregularity in

issuing a common Possession Notice in relation to common

security offered to two term loans. Since the security

granted is not an agricultural land and as such the

exemptions granted under Section 31 of the SARFAESI Act

has no application.

2022 SCC Online SC 44

CPK, J & TRR, J W.P.No.10056 of 2022

(iii) In so far as the rejection of OTS is concerned, it is

contended that as against the outstanding loan amount of

Rs.91,66,616.33 ps, the bank has agreed for OTS on

payment of Rs.50,00,000/- on or before 28.02.2022.

Except the payment of Rs.12.50 lakhs in respect of each of

the loan account, the balance amount was not paid before

28.02.2022. It is said that in spite of time being granted

beyond the date fixed, the petitioners failed to pay the

same, as such, OTS came to be rejected.

4) Sri P.S.P. Suresh Kumar, learned counsel for the

petitioners while reiterating the points raised in the

affidavit filed in support of the writ petition, submits that

the rejection of OTS is bad in law, as substantial amounts

have been paid towards two loan accounts. In other words,

his arguments is that earlier an amount of Rs.12,50,000/-

was paid and pursuant to the interim order, a further sum

of Rs.20,00,000/- was paid by the petitioners. Out of the

total OTS amount of Rs.50,00,000/-, nearly

Rs.32,50,000/- has been paid by the petitioners. Hence,

he pleads that the order rejecting the OTS is bad in law.

Coming to the maintainability of the writ petition, learned

counsel for the petitioners would contend that the

CPK, J & TRR, J W.P.No.10056 of 2022

judgment of Hon'ble Supreme Court in Phoenix ARC relied

upon by the learned counsel for the respondent would not

apply to the case on hand.

5) Sri Ambadipudi Satyanarayana, learned Standing

Counsel, appearing for the Respondent bank would submit

that, since the Bank is not performing any public

functions, a Writ against the private bank would not lie.

He would contend that the Bank accepted the request of

the petitioners in extending the time for payment of

amount, but since the petitioners failed to pay the amount

they were forced to reject the OTS. He further submits that

all the mandatory requirements as contemplated are

complied with, and as such, there is no illegality in issuing

notice under Section 8(1) of the SARFAESI Act and also in

rejection of OTS.

6) Since the issue involves substantial question of law

namely maintainability of writ petition, we requested Sri

Vivek Chandra Sekhar S, learned counsel to assist the

Court as Amicus Curiae.

CPK, J & TRR, J W.P.No.10056 of 2022

7) In Board of Control for Cricket in India vs. Cricket

Association of Bihar and others2, the Hon'ble Supreme

Court was dealing with an issue as to whether a writ under

Article 226 of Constitution of India would lie against BCCI,

when it is not a "State" within the meaning of Article 12 of

the Constitution of India. After referring to the following

judgments viz., (i) Sukhdev Singh vs. Bhagatram Sardar

Singh Raghuvanshi reported in (1975) 1 SCC 421; (ii)

Marsh vs. Alabama reported in 326 US 501 (1946); (iii)

Ramana Dayaram Shetty vs. International Airport

Authority of India reported in (1979) 3 SCC 489; (iv) Ajay

Hasia vs. Khalid Mujib Sehravardi reported in (1981) 1

SCC 722; (v) Pradeep Kumar Biswas vs. Indian Institute of

Chemical Biology reported in (2002) 5 SCC 111; (vi) Board

of Control for Cricket in India vs. Netaji Cricket Club

reported in (2005) 4 SCC 741; (vii) Zee Telefilms Ltd. Vs.

Union of India reported in (2005) 4 SCC 649, the Hon'ble

Supreme Court held as under:-

"34. The functions of the Board are clearly public functions, which, till such time the State intervenes to takeover the same, remain in the nature of public functions, no matter discharged by a society registered

2 (2015) 3 SCC 251

CPK, J & TRR, J W.P.No.10056 of 2022

under the Registration of Societies Act. Suffice it to say that if the Government not only allows an autonomous/private body to discharge functions which it could in law take over or regulate but even lends its assistance to such a non-government body to undertake such functions which by their very nature are public functions, it cannot be said that the functions are not public functions or that the entity discharging the same is not answerable on the standards generally applicable to judicial review of State action.

35. Our answer to Question (i), therefore, is in the negative, qua, the first part and affirmative qua the second. BCCI may not be "State" under Article 12 of the Constitution but is certainly amenable to writ jurisdiction under Article 226 of the Constitution of India."

8) From the judgments referred to above, the Two Judge

Bench of Hon'ble Supreme Court has categorically held

that even though the BCCI is not a "State" within the

meaning of Article 12 of the Constitution of India, still a

Writ Petition under Article 226 of Constitution of India is

maintainable having regard to the duties performed by

BCCI.

9) This issue as to whether a 'Writ' would lie against a

Private Bank came up for consideration before a Division

Bench of the Punjab and Haryana High Court in Amrik

CPK, J & TRR, J W.P.No.10056 of 2022

Singh V. DCB Bank Limited and Another3, wherein it

was held that, a Writ Petition is maintainable. The Court

categorically held that, the decision in Phoenix ARC

Private Limited [cited 1st supra] is inapplicable to the case

on hand, as the said case was dealing with Asset

Reconstruction Company. Apart from that, the Division

Bench held that a writ would lie as measures under the

provisions of Securitization & Reconstruction of Financial

Assets & Enforcement of Security Interest Act, 2002 ['the

SARFAESI Act'], are not yet been initiated and remedy

under Section 17(1) of the SARFAESI Act, cannot be

availed and the issue as to whether time can be extended

for compliance of terms of One Time Settlement is not

within the purview of the Debts Recovery Tribunal, having

regard to the language in Section17 of the SARFAESI Act.

10) In A-One Mega Mart P. Limited and Ors. V. HDFC

Bank and Ors.4, another Division Bench of the Punjab

and Haryana High Court, after referring to the Judgments

of the Hon'ble Supreme Court in Praga Tools Corporation

V. Shri C.V. Imanual and Others5, Shri Anadi Mukta

2022 LawSuit (P&H) 568 4 MANU/PH/3108/2012 5 AIR 1969 SC 1306 , MANU/SC/0327/1969

CPK, J & TRR, J W.P.No.10056 of 2022

Sadguru Shree Muktajee Vandasjiswami Survarna

Jayanti Mahotsav Smarak Trust and Others V. V.R.

Rudani and Others6, VST Industries Limited V. VST

Industries Workers' Union7, Binny Limited and

another V. V. Sadasivan and others8; judgment of the

Bombay High Court in Firozali Abdulkarim Jivani and

another v. The Union of India and others9, judgment of

the Delhi High Court in Rahul Mehra v. Union of India10,

and the Judgment of Punjab and Haryana High Court in

Miss Ravneet Kaur v. The Christian Medical College,

Ludhiana, held in paragraph Nos. 25, 26 and 27 as under:

"25. Another factor which cannot be ignored is that under Section 17 of the SARFAESI Act, an appeal lies to the Debt Recovery Tribunal against the action of the Bank and against any order passed thereunder, an appeal is maintainable under Section 18 of the said Act to Debt Recovery Appellate Tribunal (DRAT). An order passed by DRAT is amenable to writ jurisdiction of the High Court. Section 34 of SARFAESI Act also has significance in deciding the issue relating to writ jurisdiction of this Court. This facet lends different dimension to the controversy raised herein. Section 34 bars the jurisdiction of civil courts in matters relating to actions where provisions of SARFAESI Act have been

6 AIR 1989 SC 1607 , MANU/SC/0028/1989 7 (2001) 1 SCC 298 , MANU/SC/0760/2000 8 (2005) 6 SCC 657 , MANU/SC/0470/2005 9 AIR 1992 Bom 179 , MANU/MH/0035/1992 10 2004 (114) D.L.T. 323 , MANU/DE/0846/2004

CPK, J & TRR, J W.P.No.10056 of 2022

invoked. Constitution guarantees equality and strikes against any arbitrary action of an authority. It cannot be said that wherever any authority acts in a discriminatory or unreasonable manner, the aggrieved party would be without any remedy either by way of civil suit or by invoking writ jurisdiction of the High Court. In such circumstances, it cannot be held that an action by the Scheduled Bank to which the provisions of SARFAESI Act are applicable and have been invoked by it, it shall be immune from the extraordinary writ jurisdiction of this Court.

26. Now adverting to the cases on which reliance had been placed by learned counsel for the respondent- Bank, the question in the Federal Bank's case (supra) was relating to employer-employee dispute for which the employee had sought to approach writ Court for exercise of extraordinary jurisdiction under Article 226/227 of the Constitution of India. It was in those circumstances, it was held that writ petition under Article 226 was not maintainable. However, Satyawati Tandon and Tamil Nadu Industrial Investment Corporation Limited's cases (supra) being different on facts do not advance the case of the respondents.

27. From the above, it is concluded that ordinarily no writ would lie against a private Bank. However, where the Bank is a Scheduled Bank under Reserve Bank of India Act, 1934 and is governed by the provisions of Banking Regulation Act, 1949, it shall be amenable to writ jurisdiction of this Court where the Scheduled Bank takes recourse to the provisions of SARFAESI Act. ................."

CPK, J & TRR, J W.P.No.10056 of 2022

11) As far as maintainability of Writ Petition is

concerned, it is not in dispute that Respondent - M/s.

Kotak Mahindra Bank Private Limited, is a Scheduled

Bank mentioned in the Schedule of the Reserve Bank of

India Act, 1934, and is governed by the Banking

Regulation Act, 1949. It is also not in dispute that the One

Time Settlement policy framed by the respondent was

based on circulars issued by the Reserve Bank of India.

12) At this stage, the learned Counsel brought to the

notice of the Court the Judgment of the Hon'ble Supreme

Court in Phoenix ARC Private Limited [cited 1st supra]. In

the said case, the Apex Court, after referring to the

judgments on the subject held as under:

"12. Even otherwise, it is required to be noted that a writ petition against the private financial institution - ARC - appellant herein under Article 226 of the Constitution of India against the proposed action/actions under Section 13(4) of the SARFAESI Act can be said to be not maintainable. In the present case, the ARC proposed to take action/actions under the SARFAESI Act to recover the borrowed amount as a secured creditor. The ARC as such cannot be said to be performing public functions which are normally expected to be performed by the State authorities. During the course of a commercial transaction and under the contract, the bank/ARC lent the money to the

CPK, J & TRR, J W.P.No.10056 of 2022

borrowers herein and therefore the said activity of the bank/ARC cannot be said to be as performing a public function which is normally expected to be performed by the State authorities. If proceedings are initiated under the SARFAESI Act and/or any proposed action is to be taken and the borrower is aggrieved by any of the actions of the private bank/bank/ARC, borrower has to avail the remedy under the SARFAESI Act and no writ petition would lie and/or is maintainable and/or entertainable. Therefore, decisions of this Court in the cases of Praga Tools Corporation (supra) and Ramesh Ahluwalia (supra) relied upon by the learned counsel appearing on behalf of the borrowers are not of any assistance to the borrowers.

13) A perusal of the said judgment would indicate that, if

the proceedings are initiated under the SARFAESI Act and

any proposed action is sought to be taken and the

borrower is aggrieved by any of the actions of the private

bank/Bank/ARC, the borrower has to avail the remedy

under SARFAESI Act and no Writ would lie or maintainable

or entertainable. It is to be noted here that the judgments

refers to Private Bank/Bank/ARC. The word 'Bank'

referred to therein may take within its fold Nationalised

Banks as well, against which, a Writ Petition would lie.

Therefore, what appears to have been contemplated is that

if the provisions of SARFAESI Act are invoked, the remedy

available would be filing of an appeal under the provisions

CPK, J & TRR, J W.P.No.10056 of 2022

before the Debts Recovery Tribunal. Therefore, it cannot be

said that no writ would lie against a Scheduled Bank in all

circumstances. In the instant case, the fact that the

respondent Bank is a Scheduled Bank is not in dispute. It

is also not in dispute that the Scheduled Bank is

functioning under Reserve Bank of India Guidelines and

the provisions of the Banking Regulation Act, are made

applicable to the said Bank.

14) From the material available on record, it is clear that

due to default committed by the Petitioners in payment of

loans, possession notice came to be issued invoking the

provisions of SARFAESI Act, which came to be challenged

before the Debts Recovery Tribunal in S.A. No.249 of 2018.

In view of the representation made that the Bank is

withdrawing the possession notice, the S.A. was dismissed

as infructuous. Thereafter, the Bank initiated fresh

proceedings under the provisions of the SARFAESI Act and

the Rules made there-under, for recovery of the amount.

The Petitioners were given the benefit of getting their loans

cleared in One Time Settlement Scheme. The record also

shows that, out the total amount of Rs.50,00,000/- agreed

to be accepted for closure of loan accounts under OTS

CPK, J & TRR, J W.P.No.10056 of 2022

Scheme, an amount of Rs.32,50,000/- was paid by the

Petitioners. As the entire agreed amount could not be paid

with the time fixed or even by the extended date, OTS

benefit was denied. It appears from the record that,

pursuant to the interim order passed by this Court, in this

Writ Petition, a sum of Rs.20,00,000/- was also paid.

15) It is no doubt true that, extending benefit of One

Time Settlement is discretion of the Bank. It may also be

true that the Petitioners could not have paid the amount in

time due to COVID Pandemic. At the same time, it is to be

noticed that in view of the Judgment of the Hon'ble

Supreme Court in The Bijnor Urban Cooperative Bank &

Others V. Meenal Agarwal and Others, a positive

direction cannot be given to the Bank, to offer One Time

Settlement. In the said case, the Hon'ble Apex Court was

dealing with a direction given by Allahabad High Court to

Bijnor Urban Cooperative Bank, to consider granting One

Time Settlement to a defaulter despite the Bank pleading

that the provisions of SARFAESI Act have been initiated.

16) But, in the instant case, as stated above, One Time

Settlement Scheme was extended to the Petitioners and

CPK, J & TRR, J W.P.No.10056 of 2022

they have paid substantial amounts under the Scheme and

could not repay the balance due as they became sick due

to COVID. Under those circumstances, the judgment in

the Bijnor Urban Cooperative Bank may not apply to the

case on hand. Apart from that, it is also to be noted that

pursuant to an interim direction given by this Court, an

amount of Rs.20,00,000/- was paid under OTS Scheme.

That being the position and a substantial amount has been

paid, a direction can be given to the Bank to extend time

for payment of balance amount.

17) The record placed before the Court also show that

the provisions of SARFAESI Act came to be initiated by

issuing a notice under Rule 8. Having regard to the

judgment of the Hon'ble Apex Court, referred to above, if

the petitioner intend to challenge the procedure as violative

of provisions of SARFAESI Act, the remedy would be to

approach DRT under Section 17 of the Act. But, issue, in

the instant case relates to One Time Settlement, which was

offered, accepted and lead to payment of substantial

amount by the Petitioners. Further, a sum of

Rs.20,00,000/- came to be paid pursuant to an interim

order passed by this Court in this writ petition. Under

CPK, J & TRR, J W.P.No.10056 of 2022

those circumstances, it may not be proper for this Court to

relegate the matter to Debts Recovery Tribunal, more so,

when there is doubt as to whether the Debts Recovery

Tribunal can enquire into the aspect of One Time

Settlement Scheme or in other words, whether it has got

jurisdiction to deal with the action of the Bank in not

extending time for payment of balance of OTS amount.

18) Hence, the Writ Petition is disposed of, directing the

Respondent Bank to give some more time to the Petitioners

to comply with the One Time Settlement Scheme by paying

the balance amount with interest, if any. It is needless to

mention that the Respondent Bank may fix a time limit for

complying the same, within a period of four [04] weeks

from today. Meantime, the Respondent Bank may not take

any coercive steps.

19) With the above direction, the Writ Petition is

disposed of. No order as to costs.

20) Before parting with the case, the Court places on

record its appreciation and gratitude to the learned

"Amicus Curiae" Sri Vivek Chandra Sekhar S, Advocate, for

the valuable inputs and efforts made by him.

CPK, J & TRR, J W.P.No.10056 of 2022

Miscellaneous petitions pending, if any, shall stand

closed.

_______________________________ JUSTICE C.PRAVEEN KUMAR

________________________________________ JUSTICE TARLADA RAJASEKHAR RAO

Date: 21.10.2022 MS/SM

CPK, J & TRR, J W.P.No.10056 of 2022

THE HON'BLE SRI JUSTICE C.PRAVEEN KUMAR

AND

THE HON'BLE SRI JUSTICE TARLADA RAJASEKHAR RAO

Writ Petition No.10056 of 2022 (per the Hon'ble Sri Justice C. Praveen Kumar) Date:21.10.2022

MS