Andhra Pradesh High Court - Amravati
M/S. Bhavathi Health Care, vs The State Of Andhra Pradesh, on 4 October, 2024
APHC010427402019
IN THE HIGH COURT OF ANDHRA PRADESH
AT AMARAVATI [3330]
(Special Original Jurisdiction)
FRIDAY, THE FOURTH DAY OF OCTOBER
TWO THOUSAND AND TWENTY FOUR
PRESENT
THE HONOURABLE SRI JUSTICE TARLADA RAJASEKHAR RAO
WRIT PETITION No: 20626/2019
Between:
M/s. Bhavathi Health Care, and Others ...PETITIONER(S)
AND
The State Of Andhra Pradesh and Others ...RESPONDENT(S)
Counsel for the Petitioner(S):
1. N PRAMOD
Counsel for the Respondent(S):
1. NAMAVARAPU CHANTI BABU
2. P DURGA PRASAD
WRIT PETITION No: 3797/2020
Between:
M/s. Bhagyavathi Health Care, Rep. and Others ...PETITIONER(S)
AND
The State Of Andhra Pradesh and Others ...RESPONDENT(S)
Counsel for the Petitioner(S):
1. N PRAMOD
Counsel for the Respondent(S):
1. GP FOR COOPERATION (AP)
2. P DURGA PRASAD
The Court made the following:
2
COMMON ORDER:
Since the issues in both the Writ Petitions are intertwined, they
will be taken up together for disposal. Initially, Writ Petition No.20626 of
2019 is filed under Article 226 of the Constitution of India for the
following relief/s:
"...to issue writ of Mandamus declaring the notice issued by
the 4th Respondent dated 29.08.2019, as illegal, arbitrary, ultra
vires, unconstitutional, without authority of law and violative of
Article 14 of Constitution of India and consequently direct the
respondents to forebear from dispossessing the petitioners
from the possession of the property in pursuance of the said
notice dated 28.11.2019 and to pass such other....."
2. During pendency of the Writ Petition No.20626 of 2019, the writ
petitioners filed I.A.No.1 of 2023 under Order VI Rule 17 read with
Section 151 of C.P.C. for amendment of the prayer in the Writ Petition,
praying to add "to declare to the effect that the proceedings initiated by
the respondents No.2 to 4 relating to passing of the award dated 24-01-
2017 and consequential action of issuing of the Sale Certificate in
favour of the 4th respondent is null and void and without jurisdiction" in
the portion of the relief pending disposal of the above writ petition and
pass such other orders. The said I.A.No.1 of 2023 is allowed today vide
separate order.
3. Writ Petition No.3797 of 2020 is filed under Article 226 of the
Constitution of India for the following relief/s:
"...to issue writ of Mandamus declaring the proceedings
issued by the 2nd respondent dated 16.11.2019, issued in
pursuance of the orders passed in E.P.No.58/2017-18,
purportedly in exercise of the powers conferred under Rule 52
of AP Cooperative Societies Rules, 1964 and consequential
registration of sale deed dated 11.12.2019 as Document
No.8/2019, in respect of EP schedule property in favour of 3rd
respondent, registered at the office of the 5th respondent as
sham, nominal, invalid, void, illegal, arbitrary and ultra-vires,
without authority of law, jurisdiction and unconstitutional and
violative of Article 14 and 300A of the Constitution of India,
consequently to set-aside the sale deed registered as
document No.8/2019, dated 11.12.2019 at the office of the 5th
respondent and to pass such other....."
4. Brief facts of the case of the writ petitioners in W.P.No.20626 of
2019 are as follows:
The writ petitioners herein availed loans from 4th respondent-
bank, vid Loan Nos.1014-50-111-000049 and 1014-18-103-000016,
agreeing to repay the loan amount in 84 equal monthly instalments, by
mortgaging a building property bearing D.No.50-102-17, MIG-161 with
an extent of 350 square yards at Seethammadhara, Visakhapatnam.
The writ petitioners paid monthly instalments till December, 2016, on an
account of default of repayment of instalments from the month of April,
2017, the loan was classified as Non-performing Asset (NPA). The 4th
respondent-bank has initiated recovery/arbitration proceedings before
the Deputy Registrar of Co-operative Societies, Kakinada, under
Section 61 of the A.P.Co-operative Societies Act, 1964 (for short, „the
APCS Act‟), vide ARC Nos.168/2016-17 and 169/2016-17 for the
amounts of Rs.1,83,67,353/- and Rs.41,05,709/- respectively.
5. Accordingly, award was passed against the writ petitioners and
Execution Petitions were filed against the writ petitioners, vide CEP
No.57/2017-18 and CEP No.58/2017-18 before the Deputy Registrar of
Co-operative Societies, Kakinada, seeking execution of the award and
objections were made by the writ petitioners. The said execution
proceedings were transferred to the Deputy Registrar of Co-operative
Societies, Visakhapatnam (who is arrayed as 2nd respondent in the
present Writ Petitions), on the ground that the registration of mortgaged
property is situated at Visakhapatnam. The 2nd respondent has issued
sale by invoking the provisions of Rule 52 of the A.P.Co-operative
Rules, 1964 (for short, „the APCS Rules‟).
6. The writ petitioners herein filed W.P.No.37588 of 2018 before the
composite High Court at Hyderabad, assailing the sale notice dated
12.09.2018 and the High Court at Hyderabad has granted interim relief,
vide order dated 24.01.2018, directing the petitioners herein to pay an
amount of Rs.50 lakhs within two weeks and another Rs.50 lakhs to be
paid within two weeks thereafter and the auction scheduled to be held
on 29.11.2018 may go on, but for a period of two weeks, auction
proceedings shall not finalize and the writ petitioners have failed to
comply the orders of the High Court and subsequently, the said Writ
Petition was dismissed by the High Court on 12.09.2019 for non-
prosecution.
7. Thereafter, the 3rd respondent conducted auction in the premises
of the Kakinada Co-operative Town Bank Limited, Visakhapatnam, on
12.06.2019 and the auction was not finalized because no bidders have
come forward to remit the outstanding amounts against the auction
property, though the auction notices published in the highest circulated
daily newspaper, i.e., Eenadu Telugu Daily newspaper, in advance. The
4th respondent has issued a notice to the writ petitioners informing that
the auction for sale of the mortgaged property conducted four times by
the sale officer, but the auctions are not materialized, as the expected
amount was not fetched and non-participation of bidders. The latest
auction was conducted on 12.06.2019. As the auction was not
materialized, the Board of Management resolved to set off the property
towards full and final settlement of entire dues.
8. Questioning the said notice, the writ petitioners filed
W.P.No.20626 of 2019 before this Court on the ground that the 3rd
respondent has not followed the procedure to conduct open auction by
giving wide publicity and proclamation to attract good price of the
property sought to be auctioned. On the aforesaid ground, the present
Writ Petition No.20626 of 2019 came to be filed.
9. While the Writ Petition is pending, the writ petitioners herein filed
I.A.No.1 of 2023 under Order 6 Rule 17 read with Section 151 of C.P.C.
for amendment of the prayer, on the ground that the only recourse that
is available with the respondent-bank to seek recovery of debt of the
amount more than Rs.10,00,000/- should be availed by filing an
application under the provisions of the Recovery of Debts and
Bankruptcy Act, 1993, as held by the judgment rendered by a Full
bench of the composite High Court in M.Babu Rao and others v. Deputy
Registrar of Co-operative Societies/Officer on Special Duty, Vasavi Co-
op. Urban Bank Ltd., Malakpet, Hyderabad and others1 and also relying
on the judgment of the Hon‟ble Apex Court in Pandurang Ganpat
Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Limited2.
2005 (4) ALD 582 (FB)
(2020) 9 SCC 215
10. In M.Babu Rao's case (1 supra), it was held by the Full Bench of
the composite High Court as follows:
""133. On the analysis above, we conclude, declare and hold:
(a) That recovery of monies (whether called a debt, arrears or by
any other name) due to a banking institution including a Co-
operative Bank is a matter that integrally falls within the core and
substantive area of the legislative field Banking in Entry-45, List-I
of the Seventh Schedule of the Constitution.
(b) The above subject matter is therefore excluded from the State
legislative field in Entry-32, List-II of the Seventh Schedule.
(c) Recovery of monies due to a Co-operative Bank is not a matter
that falls within the incidental and ancillary areas of the State
legislative field in Entry-32, List-II of the Seventh Schedule.
(d) A Co-operative Bank as defined in Section 5(cci) of the
Banking Regulation Act, 1949 (as amended by Act 23 of 1965) is
a Bank and a Banking company within the meaning of Section
2(d) and (e) of the Recovery of Debts due to Banks and Financial
Institutions Act, 1993.
(e) A Tribunal constituted under the provisions of the Recovery of
Debts due to Banks and Financial Institutions Act, 1993 has
exclusive jurisdiction, powers and authority to entertain and decide
applications from a Co-operative bank for recovery of debts due to
such bank, subject to the pecuniary limits of jurisdiction specified
by or under the said Act.
(f) Section 71(1) of the 1964 Act in so far as it expressly confers
power on the Registrar to issue a certificate for recovery of arrears
of any sum advanced by a financing bank to its members, is
beyond the legislative competence of the State.
(g) The words "or financing bank" in Section 71(1) of the Andhra
Pradesh Co-operative Societies Act, 1964 expressly result in the
provisions of the Section transgressing the State's legislative
limits. These words being severable are therefore declared invalid.
(h) The provisions of Section 61 and 71 {after striking down of the
words in Section 71(1)} are restrictively construed as excluding
any jurisdiction, powers or authority in the Registrar in respect of
recovery of debts or arrears due to a Co-operative Bank, its
members or others which are advanced, lent or otherwise made
over to such member or person, during the course of the banking
business of such Co- operative Bank.
(i) (a) No claim, application or other proceedings lodged or
instituted before the Registrar, by a Co-operative Bank for
recovery of the amount/debt due from a member or other person
pursuant to advances made in the course of its banking business
could be entertained or determined by the Registrar.
(b) Any award or order passed, certificate issued or an order in
execution proceedings, by the Registrar on any claim or
application of a Co-operative Bank, is patently and inherently
without jurisdiction, null, void and inoperative.
(j) During the pendency of these writ petitions, by virtue of various
court orders certain amounts have been deposited by some of the
writ petitioners. At no point of time these writ petitioners have
disputed the liability of the amounts already deposited with the
banks in pursuance of the orders of the Court. Therefore, we
direct that the amounts deposited shall be retained by the
concerned banks and adjusted against the liabilities, if any, that
remain to be determined pursuant to proceedings initiated by the
respective banks in accordance with this judgment.
(k) In view of the declaration in this judgment, the respondent-
banks are at liberty to proceed with the recovery of debts due to
them, before the appropriate forum and under the appropriate law,
in accordance with this judgment.
(l) As the proceedings initiated before the Registrar or any other
authority under the 1964 Act were bona fide and as considerable
time had been consumed in the litigation in this case also, the
respondents-banks shall be entitled to set off the period spent in
pursuing their claims before the Registrar or other Fora and before
this Court, in computing the period for filing appropriate
applications/claims before the appropriate authority/Tribunal."
11. The relevant para No.102 in Pandurang Ganpat Chaugule's case
(2 supra) reads as under, which is the judgment delivered by the
Constitution Bench, has dealt with the earlier judgment of the Supreme
Court and paragraphs 120 and 142 of the aforesaid judgment read as
under:
"120. In Greater Bombay Coop. Bank Ltd. v. United Yarn Tex (P)
Ltd. ((2007) 6 SCC 236), the provisions of the BR Act, 1949 were
simply noted; there was no in- depth consideration of the various
provisions and, more particularly of those contained in Section 56
of the Act. The main issue was whether the court had jurisdiction
or Debts Recovery Tribunal to recover the amount from the
debtor. In that connection, the question of application of RDB Act,
1993 to the co-operative societies constituted under MSCS Act as
well as State Cooperative Acts arose and also whether the State
legislature was competent to enact legislation concerning
cooperative societies incidentally transacting the business of
banking in the light of List II Entry 32. The findings were recorded
on various aspects with which we are unable to agree. The
discussion on various issues was not in depth, could not be said
to be binding. We have dealt with the various questions with the
help of various decisions of this Court, and we find ourselves
unable to agree with the conclusions recorded therein. The
cooperative banks are doing the banking business, it could not be
said to be an incidental activity but main and only activity. We are
unable to subscribe to the view taken in Greater Bombay Coop.
Bank Ltd. (supra) as the provisions were not correctly appreciated.
142. Resultantly, we answer the reference as under:
142.1.(1)(a) The cooperative banks registered under the State
legislation and multi-State level cooperative societies registered
under the MSCS Act, 2002 with respect to "banking" are governed
by the legislation relatable to Schedule VII List I Entry 45 of the
Constitution of India.
142.1. (b) The cooperative banks run by the co- operative
societies registered under the State legislation with respect to the
aspects of "incorporation, regulation and winding up", in particular,
with respect to the matters which are outside the purview of
Schedule VII List I Entry 45 of the Constitution of India, are
governed by the said legislation relatable to Schedule VII List II
Entry 32 of the Constitution of India.
142.2. (2) The cooperative banks involved in the activities related
to banking are covered within the meaning of "banking company"
defined under Section 5(c) read with Section 56(a) of the Banking
Regulation Act, 1949, which is a legislation relatable to List I Entry
45. It governs the aspect of "banking" of co- operative banks run
by the cooperative societies. The cooperative banks cannot carry
on any activity without compliance of the provisions of the Banking
Regulation Act, 1949 and any other legislation applicable to such
banks relatable to "Banking" in List I Entry 45 and the RBI Act
relatable to Schedule VII List I Entry 38 of the Constitution of
India.
142.3. (3)(a) The cooperative banks under the State legislation
and multi-State cooperative banks are "banks" under Section
2(1)(c) of Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002. The recovery is
an essential part of banking; as such, the recovery procedure
prescribed under Section 13 of the SARFAESI Act, a legislation
relatable to Schedule VII List I Entry 45 to the Constitution of
India, is applicable.
142.4. (3)(b) Parliament has legislative competence under
Schedule VII List I Entry 45 of the Constitution of India to provide
additional procedures for recovery under Section 13 of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 with respect to
cooperative banks. The provisions of Section 2(1)(c)(iv-a), of
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, adding "ex abundanti
cautela", "a multi-State co- operative bank" is not ultra vires as
well as the Notification dated 28-1-2003 issued with respect to the
cooperative banks registered under the State legislation."
In exercise of the powers under sub-clause (v) of clause (c)
of Section 2 of SARFAESI Act, the Central Government has
issued a notification on 28th January 2003 for including Co-
operative Banks within the definition of 'Bank' for the purposes
of SARFAESI Act. Accordingly, Co-operative Banks were brought
within the purview of definition of Bank under clause (c) of Section
2 of SARFAESI Act. The notification dated 28th January 2003
records that Co-operative Banks as defined in clause (cci)
of Section 5 of the Banking Regulation Act, 1949 shall be 'Banks'
for the purposes of SARFAESI Act.
There is no dispute that the Apex Court has made no observation
in the said decision that the decision will operate prospectively."
12. The sheet-anchor argument of the learned counsel for the writ
petitioners is that the Arbitrator has no jurisdiction to entertain the
application for recovery of the amount and the bank is having remedy of
filing an application under the Recovery of Debts and Bankruptcy Act,
1993, or under the SARFAESI Act and the judgment of the Hon‟ble
Apex Court in Pandurang Ganpat Chaugule's case (2 supra) is
retrospective effect and also contended that the judgment passed by the
Apex Court is always retrospective effect and therefore, prayed to set
aside the sale notice dated 29.08.2019, as the Arbitrator/2nd respondent
has no jurisdiction to entertain the dispute by applying doctrine coram-
non-judice.
13. Learned counsel for the petitioners also relied on the judgment of
the Hon‟ble Apex Court in Manoj Parihar & others v. State of Jammu &
Kashmir and others3, wherein the Hon‟ble Apex Court relying on the
2022 LiveLaw (SC) 560
judgment in Bimlesh Tanwar v. State of Haryana4 and P.V.George v.
State of Kerala5, held that the law declared by a Court will have
retrospective effect, if not otherwise stated to be so specifically.
14. Learned counsel for the writ petitioners would further submit that
Pandurang Ganpat Chaugule's case (2 supra) was not specifically
stated that it was prospective effect and therefore, it is deemed to be
retrospective effect, hence, contended that in view of the said judgment,
the impugned notice is liable to be set aside. And also contended that
the 4th respondent has no jurisdiction to entertain the claim application
and he lacks jurisdiction/coram non judice. Hence, on all these
grounds, voiced that the sale conducted by the 2nd respondent is not
sustainable and the 4th respondent has to avail the remedy either under
the Recovery of Debts and Bankruptcy Act or the SARFAESI Act, in
view of the judgments in M.Babu Rao's case (1 supra) and Pandurang
Ganpat Chaugule's case (2 supra).
15. Learned counsel for the 4th respondent would submit that the
award was passed on 21.04.2017 against the writ petitioners for not
repaying the loan amount taken from the 4th respondent-bank and
(2003) 5 SCC 604
(2007) 3 SCC 557
thereafter, the 2nd respondent herein issued sale notices in
ODEP.No.57/2017-18 & 58/2017-18 dated 12.09.2018, 29.11.2018,
28.01.2019 and 07.05.2019. Accordingly, sale has been conducted by
the Sale Officer on 29.10.2018, 19.12.2018, 15.03.2019 and 12.06.2019
and as the auctions are not materialized, the Board of Management of
the 4th respondent-bank resolved to set off the property towards full and
final settlement of entire dues.
16. Questioning the sale notice dated 12.08.2018, the writ petitioners
filed W.P.No.37588 of 2018 and this Court granted interim order on
24.01.2018, directing the petitioners to pay an amount of Rs.50 lakhs
within two weeks and another Rs.50 lakhs to be paid thereafter within
two weeks and the auction schedule to be held on 29.10.2018 may go
on, but for a period of two weeks auction proceedings shall not finalize.
And it is asserted that the writ petitioners have failed to comply the
directions issued by this Court and subsequently the said Writ Petition
was dismissed and the bank resolved to set off the property by way of
notice dated 29.08.2019 and questioning the said notice, the present
Writ Petition No.20626 of 2019 is filed.
17. And also it is asserted that the judgment of the Hon‟ble Apex
Court relied on by the learned counsel for the writ petitioners in
Pandurang Ganpat Chaugule v. vishwasrao Patil Murgud Sahakari
Bank Limited (2 supra) is not applicable to the present facts of the case
and as on the date of judgment of the Hon‟ble Apex Court, the subject
matter of the present Writ Petition was settled and it can be said that it
is not an ongoing case. And it is also stated that the issue was
determined and it had attained finality and a subsequent judgment of a
Court or Tribunal taking contrary view would adversely affect the
respondents herein. Therefore, prayed to dismiss the present
interlocutory application filed for amendment of the prayer of the Writ
Petition.
18. Heard Sri N.Pramod, learned counsel for the writ petitioners, and
the learned Assistant Government Pleader appearing for the respondent
Nos.1 and 2, and Sri O.Manohar Reddy, learned senior counsel
appearing for Sri P.Durga Prasad, learned counsel for respondent
Nos.3 and 4.
19. The learned designated senior counsel Sri O.Manohar Reddy for
the respondents 3 & 4 would submit that the judgment of Apex Court
relied by the petitioners‟ counsel is applicable only prospectively not in
retrospectively and the auction has been conducted and concluded in
favour of the Bank and the Bank is currently in possession of the
property and the petitioners did not raise the said defence at the earliest
opportunity and the Full Bench judgment in M.Baburao's case (referred
above) was rendered in 2005 and is being cited only to delay the
proceedings, hence prayed to dismiss the writ petitions.
20. Even counsel for the 3rd and 4th respondents does not dispute that
their remedy lies under the SARFAESI Act. However, contend that the
judgment of the Apex Court in Panduranga Ganpat Chaugule's (2
supra) case is only prospective. In the present case on hand already
the sale was conducted, since in the absence of proper bidders in the
auction, the said property could not be sold in auction and ultimately the
property was set off to the society for the amount due to the Society as
per the rules as contemplated under the co-operative rules.
21. The judgment of the Telangana High Court in the batch of writ
appeals (No. 1680, 1681, 1682, 1695, 1696, 1701, 1711, 1712, and
1714 of 2017) relied by the petitioners counsel appears to have been
delivered under identical facts and circumstances.
22. A learned Single Judge of the Telangana High Court confirmed
the award passed by the Arbitrator and the sale orders in an Execution
Petition by the Dy. Registrar/Divisional Cooperative Officer, Charminar
Division, in favor of the highest bidders. The findings of the learned
Single Judge were subsequently challenged in a batch of writ appeals
(No. 1680, 1681, 1682, 1695, 1696, 1701, 1711, 1712, and 1714 of
2017). The order of the learned Single Judge was set aside, with the
court holding that the action initiated under the Andhra Pradesh
Cooperative Societies Act, 1964, was a nullity. The Bank was found to
have a remedy available through filing an application under the
Recovery of Debts and Bankruptcy Act, 1993, relying on the judgments
of the Apex Court in the Ganpat Panduranga Chaugule's case (2
supra) and the M.Baburao's case (1 supra).
23. In exercise of the powers under sub-clause (v) of clause (c)
of Section 2 of the SARFAESI Act, the Central Government has issued
a notification on 28th January 2003 for including Co-operative Banks
within the definition of 'Bank' for the purposes of SARFAESI Act.
Accordingly, Co-operative Banks were brought within the purview of
definition of Bank under clause (c) of Section 2 of SARFAESI Act. The
notification dated 28th January 2003 records that Co-operative Banks
as defined in clause (cci) of Section 5 of the Banking Regulation Act,
1949 shall be 'Banks' for the purposes of SARFAESI Act.
24. When Central Government has notified the Co-operative Bank as
written in definition of Bank under the Banking Regulations Act states,
this includes it will have the option to utilize the provisions of the
Recovery of Debts and Bankruptcy Act or the SARFAESI Act for
recovery of dues.
25. When the co-operative Bank was defined under the Bank cannot
file an application for the recovery of amounts due from the writ
petitioners to the 2nd respondent, Arbitrator for adjudication as the Bank
is registered as a banking institution, including a co-operative bank.
26. The 2nd respondent, who is the arbitrator, is coram non judice and
cannot arbitrate. The arbitrator lacks the authority to adjudicate the
dispute when an alternative remedy under the Banking Regulations Act
is available for the respondent bank to recover amounts from the
petitioners. Therefore, the arbitrator's order is non-est and null and void
order in the eyes of the law, and it cannot be enforced, hence, sale
notice in pursuant to the arbitration award cannot be enforced.
27. The Supreme Court in the Panduranga Ganpat Chaugule's case
(2 supra) has not stated that the judgment affects prospectively; in the
absence of such an observation, the decision will operate
retrospectively.
28. For the aforesaid discussion, the Writ Petition in W.P.No.20626 of
2019 is liable to be allowed and accordingly, it is allowed and the
impugned sale notice dated 29.08.2019 is hereby set aside and the 3rd
and 4th respondents are at liberty to take recourse either the SARFAESI
Act or Debt Recovery Act depending on the circumstances and the
nature of debt for recovery of amounts from the petitioners/ defaulters in
accordance with law.
29. In view of the orders delivered in W.P.No.20626 of 2019, no order
is required to be passed in W.P.No.3797 of 2020. Accordingly, the Writ
Petition stands closed.
30. Undisputedly the bank is in possession of the scheduled property
following an auction conducted for its sale. The bank can retain
possession because, if the writ petitioner(s) alienate or create third-party
rights, recovery will be delayed. It is also undisputed fact that the writ
petitioners are liable to pay amounts due to the respondent bank.
31. Accordingly, W.P.No20626 of 2019 is allowed and W.P.No.3797
of 2020 is closed.
As a sequel thereto, Miscellaneous Petitions pending, if any, shall
stand closed. There shall be no order as to costs.
__________________________________
JUSTICE TARLADA RAJASEKHAR RAO
Date: 04.10.2024
siva
THE HON'BLE SRI JUSTICE TARLADA RAJASEKHAR RAO
WRIT PETITION Nos.20626 of 2019 and 3797 of 2020
Date: 04.10.2024
siva
