Bombay High Court
Pyramid Developers vs Union India Through Ministry Of Finance on 21 February, 2025
Author: A.S. Chandurkar
Bench: A.S. Chandurkar
SNEHA
2025:BHC-OS:2907-DB
ABHAY
DIXIT
Digitally signed by IN THE HIGH COURT OF JUDICATURE AT BOMBAY
SNEHA ABHAY
DIXIT ORDINARY ORIGINAL CIVIL JURISDICTION
Date: 2025.02.24
10:59:34 +0530
WRIT PETITION NO.4099 OF 2024
M/s. Pyramid Developers, ]
a Partnership Firm ]
Through its Partner Mr. Saleh Mithiborwala ]
Having Office at Dheeraj Heritage, ]
Santacruz (West), Mumbai. ] .. Petitioner
Versus
1. Union of India, ]
Through Ministry of Finance, ]
Having Office at Aaykar Bhavan, Mumbai. ]
2. Reserve Bank of India, ]
Fort, Mumbai. ]
3. M.J. Shah Capital Private Limited, ]
Having Office at Vile Parle, Mumbai. ]
4. State of Maharashtra, ]
Through Office of the Government Pleader, ]
High Court, Bombay. ] .. Respondents
Mr. Prathamesh Kamat with Mr. Kayush Zaiwalla, i/by Ms. Sapana
Rachure, Advocates for the Petitioner.
Mr. Shreyas S. Deshpande, Advocate for Respondent No.1.
Mr. Vijay Salokhe with Ms. Kirti Ojha and Mr. Ankit Upadhyay, Advocates,
i/by BLAC & Co., for Respondent No.2.
Mr. Ashok M. Saraogi with Mr. Prajot H. Jaggi and Ms. Daksha A. Parmar,
Advocates for Respondent No.3.
Smt. Anupama Pawar, Assistant Government Pleader for Respondent No.4.
CORAM : A.S. CHANDURKAR & RAJESH S. PATIL, JJ
The date on which the arguments were heard : 13TH DECEMBER, 2024.
The date on which the Judgment is pronounced : 21st FEBRUARY, 2025.
JUDGMENT :
[ Per A.S. Chandurkar, J. ]
1. Rule. Rule made returnable forthwith and heard learned counsel for
the parties. The petitioner, a Partnership Firm, registered under the Indian
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Partnership Act, 1932 through its Partner has filed this writ petition under
Articles 226 and 227 of the Constitution of India raising a challenge to the
initiation of proceedings by the 3rd respondent - M/s. M.J. Shah Capital
Pvt. Ltd., a Company incorporated under the Companies Act, 2013 by
invoking the provisions of Section 14 of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (for short, "the Act of 2002") . The petitioner seeks issuance of a
writ of Prohibition so as to restrain the learned Chief Metropolitan
Magistrate from proceeding with consideration of the Securitization
Application No.598 of 2024 (M.J. Shah Capital Pvt. Ltd. Vs. Pyramid
Developers and Ors.) on the premise that the 3rd respondent is not a
"financial institution", as defined by Section 2(1)(m)(iv) of the Act of
2002 and hence it cannot take recourse to the provisions of the Act of
2002 for enforcing its security interest.
2. The facts in brief are that according to the 3 rd respondent, it had
provided financial assistance of Rs.7.50 crores, to be disbursed from time
to time, to the Partnership Firm as per its requirements pursuant to a loan
agreement dated 10th October 2017. In lieu of the aforesaid, a mortgage
was created with regard to a flat owned by the Partnership Firm. On the
ground that the Partnership Firm failed to repay the outstanding amount,
notice under Section 13(2) of the Act of 2002 was issued on 30 th
September 2023. In its reply an objection was raised by the Partnership
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Firm that the 3rd respondent had no authority to invoke the provisions of
the Act of 2002 for recovering its dues. It is thereafter that the 3 rd
respondent filed an application under the provisions of Section 14 of the
Act of 2002 dated 29th April 2024 seeking grant of assistance to obtain
possession of the secured asset. On being served with the aforesaid
proceedings, the Partnership Firm has approached this Court seeking
issuance of a Writ of Prohibition.
3. Mr. Prathamesh Kamat, learned counsel for the petitioner-
Partnership Firm referred to various provisions of the Act of 2002 and
especially Section 2(1)(zd) which defines "secured creditor", Section 2(1)
(m) that defines "financial institution" as well as Section 14 of the Act of
2002 wherein such secured creditor can invoke provisions of Section 14
of the Act of 2002. It was submitted that for a Non-Banking Financial
Company to be considered as a "financial institution" as per Notification
dated 24th February 2020, it had to have assets worth Rs.100 crores and
above, secured debts worth Rs.50 lakhs and above which figure was
modified by Notification dated 12 th February 2021 reducing that amount
to Rs.20 lakhs and above. Referring to the affidavit-in-reply filed on behalf
of the Reserve Bank of India - 2 nd respondent, it was submitted that the
asset worth of the 3rd respondent was Rs.16.30 crores and hence it did not
satisfy the requirements of the Notification dated 24 th February 2020. On
the aforesaid basis, it was urged that as the 3 rd respondent was not a
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financial institution, it could not invoke the provisions of Section 14 of the
Act of 2002. To substantiate his contention that a writ of Prohibition ought
to be issued in such circumstances, the learned counsel placed reliance on
the decisions in S.C. Prashar and Anr. Vs. Vasantsen Dwarkadas and Ors.,
AIR 1956 Bom 530, S. Govinda Menon Vs. The Union of India and Anr.,
AIR 1967 SC 1274 and Virendra Rathore and Ors. Vs. Tehsildar Distt.
Mandsaur (Madhya Pradesh) SRG Housing Finance Limited and Ors.,
2024 SCC OnLine MP 3427. On the aspect of availability of an alternate
remedy of challenging an order passed under Section 14 of the Act of
2002, it was submitted that since the Partnership Firm was seeking
issuance of a writ of Prohibition and the proceedings under Section 14 of
the Act of 2002 were yet to be decided, there was no question of any such
remedy being available at this stage. Since an issue of jurisdiction was
raised by the Partnership Firm on undisputed facts, the writ petition ought
to be entertained on merits and adjudicated. He also referred to the
judgment of the Supreme Court in Godrej Sara Lee Ltd. Vs. Excise and
Taxation Officer-cum-Assessing Authority and Ors., 2023 SCC OnLine SC
95. It was thus prayed that a Writ of Prohibition as prayed for be issued
restraining the Chief Metropolitan Magistrate from entertaining the
application under Section 14 of the Act of 2002.
4. On the other hand Mr. Ashok M. Saraogi, learned counsel appearing
for the 3rd respondent referred to the affidavit-in-reply as filed and
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opposed the writ petition. At the outset, he submitted that the writ
petition was premature inasmuch as no order was passed by the Chief
Metropolitan Magistrate on the application filed under Section 14 of the
Act of 2002. As and when such order was passed, it would be open for the
Partnership Firm to avail its remedies under Section 17 of the Act of 2002.
The Partnership Firm having neglected to pay the amount of arrears, it
was not entitled to any discretionary relief. Without prejudice, it was
submitted that the 3rd respondent had rightly filed the proceedings under
Section 14 of the Act of 2002. It was contended that since the loan
agreement between the 3rd respondent and the Partnership Firm was
entered into on 10th October 2017, the Notification issued by the Ministry
of Finance, New Delhi on 24 th February 2020 could not be applied
retrospectively. In the proceedings filed under Section 14 of the Act of
2002, it was open for the learned Chief Metropolitan Magistrate to
consider all contentions of the Partnership Firm and pass an order.
Reliance was placed on the decisions in Mardia Chemicals Ltd. Vs. Union
of India, (2004) 4 SCC 311, Phoenix ARC (P) Ltd. Vs. Vishwa Bharati
Vidya Mandir, (2022) 5 SCC 345, Anju Chaudhary Vs. State of U.P., (2013)
6 SCC 384, Union of India Vs. W.N. Chadha, 1993 Supp (4) SCC 260,
Samaj Parivartan Samudaya Vs. State of Karnataka, (2012) 7 SCC 407 and
Manharibhai Muljibhai Kakadia Vs. Shaileshbhai Mohanbhai Patel, (2012)
10 SCC 517 to contend that the writ petition did not deserve to be
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entertained and that all challenges could be raised by the Partnership Firm
in proceedings that could be filed for challenging any adverse order, if
passed, under Section 14 of the Act of 2002. It was thus submitted that the
writ petition was liable to be dismissed.
5. We have heard the learned counsel for the parties at length and with
their assistance we have also perused the documents on record. The
Partnership Firm seeks issuance of a Writ of Prohibition on the premise
that the 3rd respondent is not a "financial institution" as contemplated by
Section 2(1)(m)(iv) of the Act of 2002 and hence it is not competent to
maintain an application under Section 14 of the Act of 2002. It is urged
that only a "secured creditor" as defined by Section 2(1)(zd) of the Act of
2002 can seek assistance of the Chief Metropolitan Magistrate in taking
possession of the secured asset. To consider this aspect a reference may be
made to the judgment of the Division Bench in S.C. Prashar and Anr.
(supra) wherein it has been held that a plea with regard to lack of
jurisdiction can be considered in exercise of writ jurisdiction. It was
observed that in case of complete absence of jurisdiction which is apparent
on the face of record, it would be permissible for the Court to prevent such
Authority from assuming jurisdiction which it did not possess. A writ of
Prohibition could be issued in such a contingency. As held by the Supreme
Court in S. Govinda Menon (supra) that if there is want of jurisdiction,
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then a Writ of Prohibition would lie so as to forbid an inferior Court or
Tribunal from continuing proceedings in excess of its jurisdiction. It would
therefore be necessary to consider as to whether the 3 rd respondent is
entitled to maintain the application filed by it under Section 14 of the Act
of 2002.
Since the prayer is to grant a writ of Prohibition, the objection
raised on behalf of the 3rd respondent of availability of an alternate
remedy after the order is passed under Section 14 of the Act of 2002 does
not warrant acceptance. If it is shown that the 3 rd respondent is not a
financial institution nor a secured creditor, as defined under the Act of
2002, it would not be in a position to invoke the jurisdiction under Section
14 of the Act of 2002 for seeking any assistance for taking possession of
the secured asset. It would therefore require consideration as to whether
the Chief Metropolitan Magistrate is empowered to entertain the
application preferred by the 3rd respondent under Section 14 of the Act of
2002 and provide assistance as sought.
6. In this regard, it would be necessary to refer to the statutory scheme
under the Act of 2002. A "secured creditor" is defined under Section 2(1)
(zd)(i) of the Act of 2002 to mean a "financial institution" holding any
right, title or interest upon any tangible or intangible asset. Section 2(1)
(m) of the Act of 2002 defines a 'financial institution' and sub-clause (iv)
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thereof being material is reproduced hereunder :-
2(1)(m)(iv) Any other institution or non-banking
financial company, as defined in clause (f)
of Section 45-I of the Reserve Bank of
India Act, 1934 (2 of 1934), which the
Central Government may, by notification,
specify as financial institution for the
purposes of this Act".
Notification dated 24th February 2020 has been issued by the Central
Government wherein it is stated that a financial institution for the
purposes of the Act of 2002 ought to have assets worth Rs.100 crores and
above to enable enforcement of security interest in secured debts of Rs.50
lakhs and above. The figure "50 lakhs" has been substituted by the figure
"Rs.20 lakhs and above" by amending the Notification dated 24 th February
2020 on 12th February 2021. Under Section 14 of the Act of 2002, it is
only a secured creditor who can invoke the jurisdiction in that regard.
Thus, a "secured creditor" means a "financial institution", as defined
by Section 2(1)(m)(iv) of the Act of 2002, which would thus require such
financial institution to satisfy the requirements of the Notification dated
24th February 2020. As per the affidavit-in-reply filed by the Reserve Bank
of India, the asset size of the 3 rd respondent as on 31st March 2024 was
Rs.16.30 crores which is less than the amount of Rs.100 crores as
indicated in the Notification dated 24th February 2020. This would indicate
that though a 3rd respondent has been issued a license by the Reserve Bank
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of India to operate as a Non-Banking Financial Company vide Certificate
of Registration dated 23rd February 2017, it does not answer the
description of Section 2(1)(m)(iv) of the Act of 2002 as its worth of assets
is less than Rs.100 crores. Thus, for the purposes of the Act of 2002, the
3rd respondent is not a financial institution and hence it cannot be a
secured creditor so as to invoke the provisions of Section 14 of the Act of
2002.
7. It was urged on behalf of the 3 rd respondent that since the loan
agreement between the parties was entered into on 10 th October 2017, the
Notification dated 24th February 2020 cannot be given any retrospective
effect so as to prevent the 3rd respondent from invoking the provisions of
the Act of 2002. We do not find that there is any question of the
Notification dated 24th February 2020 being given any retrospective effect.
What is required to be seen is whether the 3 rd respondent qualifies as a
"financial institution" for the purposes of the Act of 2002 on the date
when it invoked the jurisdiction of the Court of the Chief Metropolitan
Magistrate on 29th April 2024 seeking adjudication of the application filed
under Section 14 of the Act of 2002. Its status on the date of filing of the
proceedings under Section 14 of the Act of 2002 is required to be seen for
considering whether it is entitled to do so. Hence, this contention raised
on behalf of the 3rd respondent cannot be accepted. The decisions relied
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upon by the learned counsel for the 3 rd respondent do not assist its case in
this regard.
8. For aforesaid reasons, we find that as the 3 rd respondent is not
shown to be a "financial institution" for the purposes of invoking the
provisions of Section 14 of the Act of 2002, the application filed on its
behalf before the Chief Metropolitan Magistrate cannot be adjudicated on
merits. A case therefore has been made out for a writ of Prohibition to be
issued. Accordingly, a writ of Prohibition shall issue to prevent the Court of
the learned Chief Metropolitan Magistrate, Mumbai from proceeding and
deciding Securitization Case No.598 of 2024 (M.J. Shah Capital Pvt. Ltd.
Vs. Pyramid Developers and Ors.) . This adjudication however would not
preclude the 3rd respondent from enforcing its legal rights for recovering
its dues from the Partnership Firm in accordance with law.
9. Rule is made absolute in aforesaid terms with no order as to costs.
[ RAJESH S. PATIL, J. ] [ A.S. CHANDURKAR, J. ]
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