M/S Maxim Lightech Pvt. Ltd. vs Small Industries Development ...
2011 Latest Caselaw 2641 Del

            *IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                  Date of decision: 18th May, 2011

+                                W.P.(C) 4031/2010

M/S MAXIM LIGHTECH PVT. LTD.                                     ..... Petitioner
                               Through:       Mr. Rajeeve Mehra, Sr. Advocate with
                                              Mr. Arvind Sharma, Advocate

                                         Versus

SMALL INDUSTRIES DEVELOPMENT
BANK OF INDIA                                                     ..... Respondent
                               Through:       Mr. Rakesh Kumar Khanna, Sr.
                                              Advocate with Mr. Sarvesh Bisaria,
                                              Ms. Seema Rao & Ms. Nebha Garg,
                                              Advocates

CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1.       Whether reporters of Local papers may                   Yes
         be allowed to see the judgment?

2.       To be referred to the reporter or not?                  Yes

3.       Whether the judgment should be reported                 Yes
         in the Digest?

RAJIV SAHAI ENDLAW, J.

1. The question falling for adjudication in the present petition is,

whether after the enactment of the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest (SARFAESI) Act,

2002, the Small Industries Development Bank of India (SIDBI) constituted

under the Small Industries Development Bank of India Act, 1989 is, in

case of default of repayment of loan, precluded from proceeding under

Section 38 of the SIDBI Act and is required to necessarily proceed under

the SARFAESI Act only.

2. It is not in dispute that the petitioner had availed of loan / financial

assistance from the respondent SIDBI and the respondent SIDBI on 7th

December, 2009 recalled the loan and called upon the petitioner to pay the

amount of `3,41,67,167/- then claimed to be due; it is also not in dispute

that the respondent SIDBI vide its notice dated 24th May, 2010 impugned

in this petition invoked the provisions of Section 38 of the SIDBI Act. The

said Section 38 of the SIDBI Act empowers SIDBI to take over the

management or possession or both of an industrial concern in the small-

scale sector which is in default of a liability to SIDBI under an agreement

of repayment of loan or advance; the same also authorizes SIDBI to

transfer by way of lease or sale and realise the property pledged /

mortgaged to SIDBI. This writ petition was filed seeking to restrain the

respondent SIDBI from forcibly taking over possession of the assets of the

petitioner under the said provision.

3. The writ petition came up before this Court first on 3rd June, 2010

when after some arguments, the matter was adjourned to 7 th June, 2010.

Even though the writ petition was accompanied with an application for

interim relief to restrain the respondent SIDBI from taking over possession

of the assets of the petitioner but no interim relief was granted to the

petitioner. On 7th June, 2010, it was informed to this Court that the

respondent SIDBI had on 3rd June, 2010 itself taken over possession of the

factory premises of the petitioner at Rudrapur. In the circumstances, while

adjourning the matter, it was directed that till the next date, the respondent

SIDBI shall not proceed any further in the matter in pursuance to the notice

dated 24th May, 2010. The said order has continued in force. The

respondent SIDBI has filed a short affidavit.

4. The contention of the senior counsel for the petitioner is:

(i) that Section 38 of the SIDBI Act is more onerous and

draconian than the procedure prescribed under Section 13 of

the SARFAESI Act, also for realising the security interest by

taking over possession of the secured assets of the borrower

and transfer thereof by way of lease, assignment or sale.

(ii) it is contended that while under the SARFAESI Act as

interpreted in Mardia Chemicals Ltd. Vs. Union of India

(2004) 4 SCC 311, Misons Leather Ltd. Vs. Canara Bank

MANU/TN/1500/2007, Raghunath Rai Bareja Vs. Punjab

National Bank (2007) 2 SCC 230, Naresh Kumar Mittal Vs.

State Bank of India 161 (2009) DLT 452, Authorized

Officer, Indian Overseas Bank Vs. Ashok Saw Mill (2009) 8

SCC 366, T. Bhuvanendran Vs. LIC Housing Finance Ltd.

AIR 2010 Kerala 15 and Kohinoor Creations Vs. Syndicate

Bank 121 (2005) DLT 241 (DB), the debtor has an

opportunity of showing cause and a right of hearing (under

Sections 13(2) & 13(3A) of the SARFAESI Act) and right of

appeal to the Debt Recovery Tribunal (under Section 17 of the

SARFAESI Act), there is no such remedy available to the

debtor under the SIDBI Act.

(iii) that the proceedings under the SIDBI Act are thus in

derogation of the proceedings under the SARFAESI Act.

(iv) the provisions of the SARFAESI Act, by virtue of Section 35

thereof have an overriding effect over the SIDBI Act

particularly since the SIDBI Act is inconsistent with the rights

/ remedies of the debtor/borrower under the SARFAESI Act.

(v) that while Section 34(2) of the Recovery of Debts Due to

Banks and Financial Institutions Act, 1993 expressly provides

that the procedure under the said Act is in addition to the

procedure under the SIDBI Act, thereby saving the procedure

under the SIDBI Act, under Section 37 of the SARFAESI Act

there is no mention of SIDBI Act and thus does not save the

procedure under the SIDBI Act and after the coming into

force of the SARFAESI Act, SIDBI is to proceed for

enforcement of its security interest under the SARFAESI Act

only and not under Section 38 of the SIDBI Act.

(vi) that SIDBI in other cases has been resorting to SARFAESI

Act to enforce its security interest and is discriminating

against the petitioner by resorting to a more onerous Section

38 of the SIDBI Act against the petitioner. Reliance in this

regard is placed on notices issued by SIDBI to its other

debtors and the notice published by SIDBI of sale of assets

under the SARFAESI Act and also on the K.K. Organics Pvt.

Ltd. Vs. Small Industries Development Bank of India

MANU/DE/0597/ 2010 where SIDBI had successfully

opposed the claim that the provisions of SARFAESI Act were

not available to it.

(vii) it is contended that the draconian powers under the

SARFAESI Act of taking over possession were not allowed to

be implemented when not providing for a notice and hearing

and which led to the amendment of the SARFAESI Act.

5. The senior counsel for SIDBI has contended that:

(i) that the petition does not challenge the vires / validity of

Section 38 of the SIDBI Act.

(ii) that the SARFAESI Act was enacted inter alia to regulate

enforcement of security interest and to get over the delays

hitherto before prevalent in the same; with reference to the

objective and reasons of the SARFAESI Act, it is urged that

the same was not enacted to vest any power in the debtors /

borrowers.

(iii) had the intent of the SARFAESI Act been to repeal the modes

provided under the SIDBI Act, of enforcement of security

interest, under Section 42 of the SARFAESI Act, section 38

of the SIDBI Act would also have been repealed and / or the

SIDBI Act would have been amended under Section 41 of the

SARFAESI Act. Thus SARFAESI Act cannot be read as a

repeal of the SIDBI Act.

(iv) on enquiry, as to how SIDBI could be permitted to elect

whether to proceed against its debtor / defaulter under the

SARFAESI Act or under Section 38 of SIDBI Act, reliance

was placed on Andhra Pradesh State Financial Corporation

Vs. GAR Re-Rolling Mills (1994) 2 SCC 647 to contend that

such right of election could be vested in a Financial

Corporation so that they are not choked by the defaulting

debtors adopting frustrating or dilatory tactics and the only bar

was to availing two remedies simultaneously.

(v) the judgment aforesaid in GAR Re-Rolling Mills (supra) was

also relied upon to contend that there is no equity in favour of

a defaulting party which may justify interference by the

Courts in exercise of equitable jurisdiction under Article 226

of the Constitution of India to assist such defaulter / debtor in

not repaying the debts.

(vi) reliance was placed on Managing Director, Maharashtra

State Financial Corporation Vs. Sanjay Shankarsa

Mamarde (2010) 7 SCC 489 to contend that the choice made

by the Financial Institutions should not be interfered with.

(vii) reference was made to Transcore Vs. Union of India (2008) 1

SCC 125 to contend that the question of election does not

arise in the case of parallel remedies.

(viii) reliance was lastly placed on Central Bank of India Vs. State

of Kerala (2009) 4 SCC 94 to contend that the non obstante

clause in the SARFAESI Act gives overriding effect to the

provisions of the said Act only if there is anything

inconsistent contained in any other law and if there is no

provision in any other enactment which is inconsistent to the

provisions of the SARFAESI Act, then SARFAESI Act

cannot override the other legislation.

(ix) that the petitioner has not approached this Court with clean

hands and has concealed facts and is not entitled to any

discretionary relief on this ground. It is pleaded / contended

that the petitioner has concealed that it had committed defaults

with effect from July, 2009 but respondent SIDBI on the

assurance of the petitioner that it intended to settle including

by sale of its assets, deferred action against the petitioner but

the petitioner failed to give any concrete proposal; that the

respondent SIDBI on the request of the petitioner had also

granted re-schedulement of principal installment of the loan

vide its letter dated 4th May, 2009 and granted extension of

one year to the petitioner for making the payment; that the

petitioner despite re-schedulement failed to make any

payment and owing whereto the provisions of Section 38 of

the SIDBI Act were resorted to.

(x) that the petitioner as a defaulting borrower has no right to

direct the respondent Bank to exercise its rights in a particular

manner.

6. The senior counsel for the petitioner in rejoinder sought to

distinguish the judgments relied upon by the respondent SIDBI.

7. The SIDBI Act was enacted to establish a Financial Institution for

promotion and development in the small scale sector. It cannot possibly be

doubted or controverted that the small scale sector of the industry

constitutes a class by itself and for which class a special legislation can be

enacted. Section 2 (h) of the SIDBI Act defines an "industrial concern" in

the small scale sector as meaning any concern engaged in businesses

specified therein and under Section 13 thereof, SIDBI is to function as the

principal financial institution for promotion, financing and development of

industrial concerns in the small scale sector including by financing the

industrial concerns in the said sector. It further cannot be disputed /

controverted that unless such loans to industries in the small sector are

repaid on time, the funds available being limited, SIDBI would be unable

to finance / promote other small scale industries. Thus Section 38 of the

Act, though vires thereof are not challenged has been enacted to provide

for quick recovery of the loans from the defaulting small industries.

8. I would now proceed to consider whether SARFAESI Act, being a

subsequent enactment can be said to be repealing / overriding Section 38 of

the SIDBI Act. It does not expressly do so vide Section 42 thereof.

Reliance on Section 37 is also found to be misconceived. Section 37,

while providing that the provisions of the SARFAESI Act shall be in

addition to and not in derogation of certain laws mentioned therein, does

not expressly mention the SIDBI Act but ends with "or any other law for

the time being in force"; SIDBI Act would thus be covered by the said

expression and the SARFAESI Act can be said to be expressly laying

down that the provisions of SARFAESI Act are in addition to and not in

derogation of the SIDBI Act. Similarly, once it is held that small scale

industries form a class by themselves and for which special legislation can

be and has been made and in the absence of any challenge to the vires of

Section 38 of the SIDBI Act, I am also unable to hold that the same would

cease to apply because under the subsequent legislation a less onerous

procedure for enforcement of security interest has been laid down.

9. The question which however bothers me and on which repeated

questions during the course of hearing were put to the senior counsels is as

to the availability of two alternative remedies, one under the SARFAESI

Act and other under the SIDBI Act, to SIDBI for the same relief. There are

no guidelines to guide the authorities / officials concerned of SIDBI as to

which remedy to invoke against which defaulting debtor. The judgment in

GAR Re-Rolling Mills cited by the respondent is not found to answer the

said doubt in as much as the same was concerned with the State Financial

Corporations Act, 1951 wherein the legislature under the same statute has

conferred a choice on the Financial Corporation as to the remedy to be

availed of. Though the said judgment in para 15 records that the doctrine

of election would not apply to cases where mode and scope of the two

remedies is essentially different and held that it may otherwise lead to

injustice and inconsistent results but proceeded to only hold that both

remedies could not simultaneously be availed of.

10. Prior to the said two Judge judgment in GAR Re-Rolling Mills, a

five Judge Bench of the Supreme Court in Northern India Caterers

Private Ltd. Vs. State of Punjab AIR 1967 SC 1581, dealing with the

Public Premises (Eviction of Unauthorized Occupants) Act, 1958, by a

majority of 3:2 had held that the provisions leaving unguided discretion in

the officials to resort to one or the other remedy by applying the more

drastic procedure against some only, lent itself open to the charge of

discrimination and was violative of Article 14 of the Constitution of India.

The minority view of course held that since under neither of the procedures

protection of law was denied to the occupants, merely because the

government had the option of proceeding against the unauthorized

occupants by way of either, did not make the law invalid; it was also

observed that an unauthorized occupant has no Constitutional right to

dictate that the government should not have choice of proceedings.

11. The said judgment led to the replacement of the 1958 Act by the

Public Premises (Eviction of Unauthorized Occupants) Act, 1971 and

whereby the discrimination which so vested in the officials was done away

with and only one procedure was left for action against the unauthorized

occupants (and validity of the 1971 Act was upheld in Hari Singh Vs.

Military Estate Officer (1972) 2 SCC 239).

12. Even though the subsequent seven Judge Judgment in Maganlal

Chhaganlal (P) Ltd. Vs. Municipal Corporation of Greater Bombay

(1974) 2 SCC 402 overruled the earlier judgment in Northern India

Caterers (supra) but also held that where a statute providing for a more

drastic procedure different from the ordinary procedure covers the whole

field covered by the ordinary procedure without any guidelines as to the

class of cases in which either procedure is to be resorted to, the statute will

be hit by Article 14. In the present case, the procedure prescribed under

Section 38 of the SIDBI Act as well as under Section 13 of the SARFAESI

Act, both cover the whole field of enforcement of security interest and

without any guidelines as to the class of cases in which either procedure is

to be resorted to. This, as aforesaid, is violative of Article 14.

13. The respondent SIDBI in its counter affidavit, inspite of express

pleas in the petition has not dealt with the aforesaid aspect. The

respondent SIDBI has not denied having invoked the provisions of the

SARFAESI Act also against its creditors. There is no explanation

whatsoever as to what guides the SIDBI as to the procedure to be adopted

against the defaulting creditors for enforcement of the security interest

whether under the SARFAESI Act or under the SIDBI Act. It has to be

admitted that while the defaulting debtor has remedies of notice, hearing

and appeal under the SARFAESI Act, he has none under the SIDBI Act.

The defaulting creditor would thus certainly be at a disadvantage if

proceeded against under the SIDBI Act rather than under the SARFAESI

Act. Such unguided discretion cannot be vested in authorities and the

authorities / officials cannot be allowed to at their whims and fancy decide

as to which remedy is to be invoked against which debtor. Moreover, there

is nothing to show that the legislature while enacting the SARFAESI Act

intended to leave such discretion in the authorities / officials. Both

Maganlal Chhaganlal (supra) & GAR Re-Rolling Mills were concerned

with the discretion being vested under the same statute. In the present

case, the occasion for exercising discretion arises owing to the applicability

of two statutes. Thus, it cannot even be said that there is intentional

vesting of such discretion. The Supreme Court in Nagpur Improvement

Trust Vs. Vithal Rao (1973) 1 SCC 500 also held that if the existence of

two statues enables the State to give different treatment to similarly

situated persons, the person who is discriminated against can claim the

protection of Article 14. Similarly, in Ram Dial Vs. State of Punjab AIR

1965 SC 1518 there were two provisions in an Act for removal of member

of Municipal Committee in public interest, while one provided for hearing

to be given before removal and the other did not; it was held that arbitrary

power had been given to invoke either provision, in violation of Article 14

of the Constitution of India. To the same effect is Jagdish Chand Radhey

Shyam Vs. State of Punjab (1973) 3 SCC 428.

14. Be that as it may, even though the action of the SIDBI impugned in

this petition is found to be arbitrary and in the teeth of Article 14 of the

Constitution of India for the aforesaid reasons but I still do not find the

petitioner entitled to any relief. The petitioner has not disputed that it is in

default since July, 2009 i.e. for the last nearly two years. The petitioner

instead of making any efforts to re-pay the dues of respondent SIDBI has

been satisfied in merely restraining SIDBI from taking action. It has not

shown any anxiety whatsoever of having its assets discharged / released

and has not placed any proposal whatsoever for consideration. The

petitioner is thus found to be a chronic defaulter of public dues and not

found entitled to any discretionary relief from this Court. The Apex Court

also in Maganlal Chhaganlal as well as in GAR Re-Rolling Mills has

reiterated that this Court in exercise of jurisdiction under Article 226 is not

to come to the rescue of such defaulters. Reference in this regard may also

be made to the dicta in Digambar Prasad Vs. S.L. Dhani 1969 ILR (Delhi)

1016, Khazan Chand Vs. State of J&K (1984) 2 SCC 456, S.P.

Chengalvaraya Naidu Vs. Jagannath AIR 1994 SC 853, Orissa State

Financial Corpn. Vs. Hotel Jogendra (1996) 5 SCC 357 and Haryana

Financial Corpn. Vs. Jagdamba Oil Mills (2002) 3 SCC 496.

15. Thus, while dismissing the writ petition, the respondent SIDBI is

warned that unless guidelines prescribing the mode of election aforesaid

are made / framed, its action against its other debtors may become liable to

challenge under Article 14 as aforesaid.

No order as to costs.

RAJIV SAHAI ENDLAW (JUDGE) MAY 18, 2011 „gsr‟