Delhi High Court
Somnath Manocha vs Punjab And Sindh Bank & Anr. on 20 April, 2012
Author: A.K.Sikri
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ LPA No.942 of 2011
Reserved on: March 05, 2012
% Pronounced on: April 20, 2012
SOMNATH MANOCHA . . . APPELLANT
Through: Mr. A.S. Chandhiok, Sr.
Advocate (Amicus Curie) Mr.
Ritesh Kumar, Mr. Sidharth
Tyagi, Mr. Sumit Goyal, Ms.
Shweta Gupta, Mr. Vikas
Mehta and Mr. Piyush Sanghi,
Advocates.
VERSUS
PUNJAB AND SINDH BANK & ANR. . . .RESPONDENTS
Through: Mr. Rajinder Walia, Advocate
for respondent No.1.
Mr. Jagat Arora, Advocate for
respondent No.4.
CORAM :-
HON'BLE THE ACTING CHIEF JUSTICE
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
A.K. SIKRI (ACTING CHIEF JUSTICE)
1. This appeal poses a very interesting, and at the same time, an
important question of law pertaining to the interpretation which
is to be accorded to Section 36 of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security
Act, 2002 (hereinafter referred to as „SARFAESI Act‟). This
provision makes the following reading:
"36. Limitation
No secured creditor shall be entitled to take all or any of
the measures under sub-section (4) of section 13, unless
his claim in respect of financial asset is made within the
period of limitation prescribed under the Limitation Act,
1963 (36 of 1963)."
2. The issue as to whether action of the respondent bank invoking
the provisions of SARFAESI Act by serving notice of Section 32
of the said Act is barred by limitation or not, which has arisen
in the following background.
3. The respondent bank herein had given certain loans to one
M/s. General Tyre House, a partnership firm in the year 1981.
For securing this loan, the appellant was one of the guarantors.
He also gave the security in the form of equitable mortgage in
respect of house property bearing Municipal No.32/24, Pratap
Nagar, Jagdigh Colony, Rohtak (Haryana). The loan could not
be paid by M/s. General Tyre House, which forced the bank to
file CS (OS) No.935 of 1984 for recovery of `7,75,283.60
against that firm as well as the appellant and other guarantors.
The aforesaid proceedings are still pending adjudication and
the Suit has not been decided so far.
4. The Parliament enacted SARFAESI Act which came into effect
from 18.12.2002. This Act provides additional remedy to the
financial institutions to recover their debts by enforcing the
security. Mechanism for that is provided under this Act. The
respondent bank chose to avail this additional remedy and
thus, in February, 2003 served notice to the appellant under
Section 13(2) of the SARFAESI Act for enforcing the aforesaid
security in the form of said property mortgage to the bank.
This provision reads as under:
"13. Enforcement of security interest
(1) xxx xxx xxx
(2) Where any borrower, who is under a liability to a
secured creditor under a security agreement, makes any
default in repayment of secured debt or any installment
thereof, and his account in respect of such debt is
classified by the secured creditor as non-performing
asset, then, the secured creditor may require the
borrower by notice in writing to discharge in full his
liabilities to the secured creditor within sixty days from
the date of notice failing which the secured creditor shall
be entitled to exercise all or any of the rights under
subsection (4)."
5. Though no immediate action was taken on the basis of this
notice, fresh notice dated 20.11.2004 under Section 13(2) was
served on similar lines calling upon the appellant to pay the
entire outstanding liability amounting to `3,84,59,807/-
together with interest with effect from 21.11.2004. The
appellant replied on 07.1.2005 questioning the validity of this
notice on the ground that the action was time barred in view of
the provisions of Section 36 of SARFAESI Act read with Article
62 of the Schedule to the Limitation Act. The bank, however,
took the stand that notice was not time barred. The appellant
again reiterated his plea vide letter dated 02.4.2005 asking the
bank not to enforce the provisions of the SARFAESI Act as the
proposed action was time barred. Since the notice was not in
complied with on the aforesaid ground, i.e., the appellant did
not discharge the purported liability within 60 days of from the
date of notice, the respondent bank issued possession notice
dated 13.4.2005 under Section 13(4) of the SARFAESI Act
stating that it would take over the possession of the property in
question.
6. At this stage, the appellant filed W.P.(C) No.7228 of 2005
against the aforesaid action of the bank taking the same plea,
viz., the claim of the respondent bank was impermissible as
the action was time barred. The said plea of the appellant
herein, however, has not convinced to the learned Single Judge
and the writ petition has been dismissed vide judgment dated
17.10.2011.
7. In the opinion of the learned Single Judge, the SARFAESI Act
was intended to provide an additional remedy to a financial
institution to recover its debts as the existing legal framework
relating to commercial transactions has not kept pace with the
changing commercial practice which has resulted in slow pace
of recovery of defaulting loans and mounting levels of non-
performing assets of banks and financial institutions. Section
35 of SARFAESI Act provides that:
"The provisions of this Ordinance shall have effect,
notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or
any instrument having effect by virtue of any such law."
8. Learned Single Judge observed that the remedy provided under
the SARFAESI Act to a secured creditor for recovery of a debt
owing to it, is independent of any other remedy available in
law. Section 36 of SARFAESI Act requires that a claim should
have been made by the lender in respect of the financial assets
within the period of limitation prescribed under the Limitation
Act. Section 36 does not mandate that the notice under
Section 13(2) of SARFAESI Act must be issued within such
period of limitation. A „claim‟ in respect of the financial asset,
could be by way of any proceedings in accordance with law.
Since the SARFAESI Act itself came into force only on 18th
December, 2002, the Legislative intent was that even the sum
owned to a secured creditor prior to that date can be sought to
be recovered as long as the claim was made within the
prescribed period of limitation. The judgment of Gujarat High
Court in the case of Ivee Injectaa Ltd. Vs. Junagadh
Vibhagyiya Nagrik Sahakari Bank Ltd. [(2006) 129
Complainant Cas. 528 (Guj.)] in support of his conclusion. At
the same time, the appellant is relegated to remedy under
Section 17 of the SARFAESI Act, which provides for appeal
against such notice under Section 13(4) of the SARFAESI Act.
9. It is the contention of the appellant that prior to the coming
into force of the SARFAESI Act, the machinery for enforcing the
remedy existed under Order XXXIV Rule 4 to 6 of the Code of
Civil Procedure, 1908. The procedure was to file a suit for sale
of the mortgage property. The said procedure is such that the
mortgagee does not need to file a prior suit for recovery of
money. "A preliminary decree in a mortgage suit decides all
the issues and what is left out is only the action to be taken in
the event of non-payment (see Shub Karan Bubna @ Shub
Karan Prasad Bubna v. Sita Saran Bubna and Ors., (2009)
9 SCC 689). These issues include the question as to how much
is due and payable to the mortgagee, which is the question at
issue in a suit for recovery of money as well. Thus, whereas
the respondent bank chose to file a suit for recovery of money
against the appellant among others, it could have chosen
instead to proceed under Order XXXIV. However, it failed to do
so. The learned counsel submitted that on the contrary, the
respondent bank in par 17 of its plaint in the Suit has averred:
"........ The plaintiff is not claiming any relief against the
mortgaged immoveable property in the present suit. It
reserves its right to proceed against the said mortgaged
property as provided under the provisions of Order XXXIV
Rule 14 of the Code of Civil Procedure. Leave is sought
from the Hon‟ble Court in this regard."
10. The period of limitation for enforcing payment of money
secured by mortgage is 12 years as provided in Article 62 of
the Schedule of the Limitation Act, 1963. But, the bank never
filed any Suit under Order XXXIV of CPC.
11. On this basis, it was argued that the remedy which is now
sought to be enforced qua sale of mortgaged property was
"claimed in respect of the financial asset" which had become
time barred. It was submitted that the period for such a claim
is covered by Article 62 in the Schedule to the Limitation Act
and since that period has expired, provisions of Section 36 of
the SARFAESI Act were attracted. The learned counsel
distinguished the judgment of Gujarat High Court in Ivee
Injectaa Ltd. (supra) on the ground that in that case, the
bank had made claim in respect of mortgaged property within a
period of 12 years. It was also argued that in any case, Ivee
Injectaa Ltd. (supra) is not an authority for pendency of a
civil suit being a claim under Section 36 of SARFAESI Act.
Learned counsel, in the alternate, argued that even otherwise,
for an altogether different reason, the proceeding under
Sections 13(2) and 13(4) would be time barred. The
expression "claim in respect of a financial asset" in Section 36
must relate to the claim made under the SARFAESI Act would
depend upon claim having been made under this very Act
itself. It cannot relate to other claim by way of notice or civil
Suit or proceedings under another statute. If the
interpretation placed by the learned Single Judge on Section 36
of the SARFAESI Act is correct, then a civil Suit or other claim
instituted or made by the Bank within limitation would made
any proceeding under SARFAESI Act which is otherwise,
outside limitation, as valid. It would be odd to make the
proceeding under the SARFAESI Act which is a special statute
depend upon a remedy or claim under another law. Especially,
when Section 35 gives overriding effect to the provisions of
SARFAESI Act over anything inconsistent contained in any
other law. He also submitted that if the expression "claim" in
Section 36 of the SARFAESI Act is held to include any claim it
would include ordinary legal notice, suit etc. This would lead to
absurd results. For example, a notice may have been issued
by the lender say in the year 1984 within the period of
limitation and yet it would be sufficient to render a notice
under Debt Recovery Tribunal Act within limitation would make
a proceeding under SARFAESI Act as valid.
12. After considering the submission of the learned counsel for the
parties, we are of the view that the learned Single Judge is
right in his interpretation given to Section 36 of the SARFAESI
Act. The Act is intended to provide an additional remedy to the
financial institutions to recover their debts. Specific procedure
in this behalf is stipulated in Section 13 of the SARFAESI Act
which inter alia provides for enforcement of security interest.
Section 13 starts with non-obstante clause and authorizes a
secured creditor who enforced any security interest created in
its favour without the intervention of Court or Tribunal and in
accordance with the procedure prescribed in the Act.
Conditions stipulated in sub-Section (2) of Section 13 for
enforcing the security are as under:
(i) The borrower is a secured creditor under a security
agreement;
(ii) Borrower makes any default in repayment of
secured debt or any installment thereof;
(iii) The account of the borrower is classified by the
secured creditor as non-performing asset by the
secured creditor;
(iv) Even after notice in writing by the secured creditor
to discharge in full his liabilities to the secured
creditor within 60 days from the date of notice, the
borrower has failed to discharge the liability.
13. This additional remedy is, therefore, available to any secured
creditor on fulfillment of the aforesaid conditions. This remedy
is in addition to ordinary remedy of civil suit, therefore, merely
because bank had earlier filed a suit for recovery of an amount
would not mean that it is precluded from enforcing the security
under SARFAESI Act. Gujarat High Court in Ivee Injectaa
Ltd. (supra) has explained this position in the following
manner:
"The submission of the learned counsel for the appellant
also overlooks the scheme of the Securitization Act which
is different from the proceedings under the Code of Civil
Procedure. While the Civil Procedure Code provides for
two separate and distinct stages- (i) adjudication by the
Court of the mortgagee's claims resulting into a decree
and (ii) the subsequent stage of execution of the decree
with judicial intervention; the Securitization Act confers
power on the mortgagees, which are financial institutions,
to enforce security without the intervention of any Court
or Tribunal and notwithstanding anything contained in
Sections 69 and 69A of the Transfer of Property Act,
1882. Of course, the measures for enforcement of
security are to be taken after giving the borrower a notice
in writing to discharge in full his liabilities of the secured
creditors within 60 days from the date of notice and if the
borrower gives a reply raising any dispute about the
amount due including dispute about interest, the financial
institution will have to meaningfully consider the reply
and take the decision and thereafter proceed under sub-
section (4) of Section 13. Section 17 of the Securitization
Act confers a right of appeal before the Debts Recovery
Tribunal to any person (including the borrower) aggrieved
by any of the measures taken by the secured creditor
under Section 13(4) of the Act. Hence, when the secured
creditor has already obtained a decree of a Civil
Court/Debts Recovery Tribunal, issuance of notice under
Section 13(2) of the Securitization Act is not to be
construed as institution of a suit in a Civil Court for
enforcement of the mortgage, but the proceeding would
be in the nature of execution of the decree."
14. We are in agreement with the aforesaid exposition of law.
Provisions of Section 36 of SARFAESI Act are to be read in that
context. This Section provides that the claim in respect of
"financial asset" is to be made within the period of Limitation
Act. "Financial asset: is defined under Section 2(1)(l) of the
SARFAESI Act prescribed under the Limitation Act and reads as
under:
"(l) "financial asset" means debt or receivables and
includes--
(i) a claim to any debt or receivables or
part thereof, whether secured or
unsecured; or
(ii) any debt or receivables secured by,
mortgage of, or charge on, immovable
property; or
(iii) a mortgage, charge, hypothecation or
pledge of movable property; or any
right or interest in the security,
whether full or part underlying such
debt or receivables; or
(iv) any beneficial interest in property,
whether movable or immovable, or in
such debt, receivables, whether such
interest is existing, future, accruing,
conditional or contingent; or
(v) any financial assistance;"
15. The requirement of Section 36 is that the claim in respect of
"financial asset" is made within the period of limitation
prescribed under the Limitation Act. Claim in respect of
"financial asset" is defined as defined by Section 29(1) of the
SARFAESI Act means debt or receivables and includes a claim
to any debt or receivables or part thereof, whether secured or
unsecured, and also any beneficial interest in property,
whether movable or immovable, or in such debt, receivables,
whether such interest is existing, future, accruing, conditional
or contingent. Section 2(1)(t) which defines "property" is also
relevant. This definition reads as under:
"(t) "property" means--
(i) immovable property;
(ii) movable property;
(iii) any debt or any right to receive payment of
money, whether secured or unsecured;
(iii) receivables, whether existing or future;
(iv) intangible assets, being know-how, patent,
copyright, trade mark, licence, franchise or any
other business or commercial right of similar
nature;"
16. So far so good. The question is as to whether in the facts of
this case, the claim had become time barred. The property in
question is mortgaged with the bank. However, the bank did
not file Suit for recovery under Order XXXIV of the CPC.
Instead, in para 17 of the plaint, specific averment was made
that it was not claiming any relief against the mortgaged
immovable property in the said suit and right was reserved to
proceed against the said mortgaged property as provided
under provisions of Order XXXIV Rule 14 of the CPC.
17. It could not be disputed that under ordinary law, the
respondent bank has lost the remedy of enforcing the aforesaid
security by way of mortgage as limitation of 12 years as
provided in Article 62 of the Schedule to the Limitation Act,
1963 has expired. The bank chose to file only a suit for
recovery of money and in spite of averment made in Para 17 of
the plaint, it did not file any suit under Order XXXIV of the CPC.
No doubt, in terms of order XXXIV Rule 14, the bank was
entitled to bring the mortgaged property to sale by instituting a
suit for sale in enforcement of the mortgage whereafter
obtaining a decree for payment of money, in satisfaction of the
claim under mortgage. However, such a suit could be filed
within the period of limitation prescribed under Article 62 in the
Schedule to the Limitation Act. Thus, under the ordinary law,
the bank is precluded from filing a mortgage suit in respect of
the aforesaid property.
18. Thus, on the date of notice issued under Section 13(2) of
SARFAESI Act, there was no such existing or subsisting right
qua mortgage. We agree with the contention of the appellant
that the remedy provided under SARFAESI Act is simply a new
means of enforcing a preexisting right, i.e., one that existed
before the SARFAESI Act came into existence. That remedy is
the right to sell a mortgage property and recover the sum
which it secures from the sale proceeds. In the present case,
since right to file a suit or proceedings stood extinguished, the
SARFAESI Act would not revive this extinguished claim.
19. Position would have been different if the bank had filed
mortgage suit and such a suit was pending. In Ivee Injectaa
Ltd. (supra), mortgage suit has already been filed and
therefore, claim for enforcing mortgage rights was subsisting
as it was pending adjudication. If the period of 12 years had
not expired under Article 62 in the Schedule to the Limitation
Act and there was still time to file the proceedings of mortgage
suit, even that would have saved the right of the Bank to
enforce the provision of SARFAESI. But even that action has
become time barred. In the facts of this case, we hold that the
claim is barred under Section 36 of SARFAESI Act and
therefore, it was not open to the bank to proceed under this
Act. We, thus, allow this appeal and quash the impugned
notice under Section 13(2) and 13(4) of SARFAESI Act issued
by the bank.
No order as to costs.
ACTING CHIEF JUSTICE
(RAJIV SAHAI ENDLAW)
JUDGE
APRIL 20, 2011
pmc
