Harikrishna Engineering Works vs Syndicate Bank
2021 Latest Caselaw 655 Guj

        C/LPA/1348/2016                                       CAV JUDGMENT



            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

               R/LETTERS PATENT APPEAL NO. 1348 of 2016
                                   In
              R/SPECIAL CIVIL APPLICATION NO. 20209 of 2016


FOR APPROVAL AND SIGNATURE:

HONOURABLE DR. JUSTICE VINEET KOTHARI                                    Sd/-

and

HONOURABLE MS. JUSTICE GITA GOPI                                         Sd/-

==========================================================

1 Whether Reporters of Local Papers may be allowed to Yes see the judgment ?

2     To be referred to the Reporter or not ?                              Yes

3     Whether their Lordships wish to see the fair copy of the             Yes
      judgment ?

4     Whether this case involves a substantial question of law              --

as to the interpretation of the Constitution of India or any order made thereunder ?

========================================================== HARIKRISHNA ENGINEERING WORKS & 4 other(s) Versus SYNDICATE BANK & 1 other(s) ========================================================== Appearance:

MR BM MANGUKIYA(437) for the Appellant(s) No. 1,2,3,4,5 MR TARAK DAMANI(6089) for the Appellant(s) No. 1,2,3,4,5 MS BELA A PRAJAPATI(1946) for the Appellant(s) No. 1,2,3,4,5 MR UDAY R BHATT(192) for the Respondent(s) No. 1,2 ==========================================================

CORAM: HONOURABLE DR. JUSTICE VINEET KOTHARI and HONOURABLE MS. JUSTICE GITA GOPI

Date : 19/01/2021 CAV JUDGMENT

(PER : HONOURABLE DR. JUSTICE VINEET KOTHARI)

1. This Letters Patent Appeal is directed against the order

dated 5.12.2016, by which the learned Single Judge dismissed

Special Civil Application No.20209 of 2016 filed by the Petitioners

M/s.Harikrishna Engineering Works and others.

2. The learned Single Judge dismissed the said writ petition

filed by the Petitioners only on the ground of availability of

alternative remedy to the Petitioners, the borrowers of the certain

loans from the Respondent Syndicate Bank, under Section 17 of

the Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 ('SARFAESI Act' for

short) relying upon several decisions of the Hon'ble Supreme

Court in this regard.

3. Mr. B.M. Mangukiya, learned counsel for the Appellants

urged before us that the main crux of the matter, which does not

permit the Appellants to avail such alternative remedy as directed

by the learned Single Judge, is that the Respondent Syndicate

Bank failed to disburse the working capital loan sanctioned in

favour of one of the Appellants M/s.Nilkanth Enterprise, which is

a sister concern of M/s.Harikrishna Engineering Works, despite

the fact that the said Appellant M/s. Nilkanth Enterprise had

made a substantial investment in the said industrial unit on the

faith of the promise of the disbursement of such sanctioned loan

in favour of the said Appellant M/s. Nilkanth Enterprise to the

extent of Rs.14 crore and though the Appellants had invested

more than Rs.20 crore, in absence of the timely and punctual

disbursement of the said sanctioned working capital loan by the

Respondent Syndicate Bank, the entire project came to a

standstill and therefore, invoking the principles of promissory

estoppel, the writ petition filed by the Appellants seeking

disbursement of the said loan in favour of M/s. Nilkanth

Enterprise deserved to be allowed. He further submitted that this

relief cannot be granted by the Debts Recovery Tribunal under

provisions of Section 17 of the SARFAESI Act and consequently,

the learned Single Judge has erred in relegating the Appellants to

avail such alternative remedy.

4. He further submitted that in absence of such fulfillment of

promise on the part of the Respondent Syndicate Bank to

disburse full amount of sanctioned working capital loan, the

Respondent Syndicate Bank is not entitled to invoke the recovery

measures under Section 13 of the SARFAESI Act against the

present Appellants declaring the Loan Accounts as Non

Performing Account and consequently, the entire action on the

part of the Respondent Syndicate Bank initiated by issuance of

Notice dated 12.8.2016 under Section 13(2) of the SARFAESI Act

against these two sister concerns and its partners deserves to be

quashed by this Court.

5. He further submitted that while other loans in favour of

M/s.Harikrishna Engineering Works and Term Loan by way of

Housing Loan in favour of Mr. Nitin Mehta, Mrs. Jyotsna Mehta

and Mr. Savan Mehta were duly disbursed by the Respondent

Syndicate Bank and even the Term Loan in favour of M/s.

Nilkanth Enterprise was disbursed, but the working capital loan

was not disbursed and that derailed the entire project of

development of industrial unit and consequently, the

Respondent Syndicate Bank was bound by the principles of

promissory estoppel to disburse the same.

6. He relied upon the decision in the case of Lotus Hotel Pvt.

Ltd. vs. Gujarat State Financial Corporation, reported in AIR 1983

SC 848 : 1983 (2) GLR 1352, which arose from the judgment of

the Division Bench of this Court in the case of Gujarat State

Financial Corporation vs. Lotus Hotels Pvt. Ltd., reported in 1981

(229) GLR 982 : AIR 1981 Guj 212.

7. Per contra, Mr. Uday R. Bhatt, learned counsel for the

Respondent Syndicate Bank urged relying upon detailed Affidavit

dated 23.1.2017 filed by the Respondent Syndicate Bank before

the learned Single Judge that since the said Borrower was not

conducting well its loan account and adequate security by way of

stocks was not available and even the cases of over billing for the

purchase of the plant and machinery was found out by the

Respondent Syndicate Bank and there was a non­deposit of

margin money, therefore, for all these reasons, the Respondent

Syndicate Bank advisably felt that the disbursement of further

loan to the said Appellant would be not in the best interest of the

Bank, lest the accounts turned Non Performing Accounts.

Therefore, the Appellants are not entitled to invoke the

extraordinary writ jurisdiction of this Court under Article 226 of

the Constitution of India and seek a mandamus from this Court

to disburse the said sanctioned amount of working capital loan.

He submitted that the principles of promissory estoppel are not

applicable as the disbursement of sanctioned amount of loan also

depends upon a detailed analysis of the matrix of facts which is a

business and economic decision on the part of the Respondent

Syndicate Bank. He further submitted that the judgment relied

upon by the learned counsel for the Appellants in the case of

Lotus Hotel Pvt. Ltd. (supra) is not applicable here in the present

case, as the disbursement of the sanctioned Term Loan which

depends upon pre­scrutiny of relevant material, is different from

the disbursement of the working capital loan which depends

upon the subsequent developments after the sanction of working

capital loan viz. good conduct of business, availability of stocks

for hypothecation, etc. and therefore, the petition filed by the

Appellants has no merit.

8. He further submitted that since the measures under Section

13 of the SARFAESI Act have been initiated against the Appellants

in 2016 and for last 4 years, no effective further measures could

be taken in view of the pendency of this litigation and the

Appellants are deliberately trying to delay the same further and

not allowing the Respondent Syndicate Bank to realise its dues

from the sale of the assets mortgaged with them under provisions

of the SARFAESI Act. He further submitted that the SARFAESI

Act provides for effective alternative remedy under Section 17 of

the SARFAESI Act to any person who wants to raise any objection

against the measures taken under Section 13 of the SARFAESI Act,

who can file an Application under Section 17 of the SARFAESI Act

and therefore, the learned Single Judge was right in dismissing

the writ petition.

9. We have heard learned counsel for both sides and given our

earnest consideration to the rival submissions and the judgments

cited at bar.

10. We are of the considered opinion that the Appellants­

borrowers are seeking to put cart before the horse and are raising

bogey of promissory estoppel against the Respondent Syndicate

Bank at the stage when the accounts have already turned Non

Performing Accounts and the Bank has initiated recovery

measures under Section 13 of the SARFAESI Act, which is a

Special Law enacted by the Parliament with its overriding effect

and non­obstante provisions to provide independent power to

the Banks and Financial Institutions to undertake recovery by

coercive measures by the sale of assets of the borrower for

realisation of the dues, which is public money.

11. When the recovery measures have been initiated, instead of

availing the remedy available to the borrower for raising

objection against such recovery measures under Section 17 of the

SARFAESI Act before the Debts Recovery Tribunal, the Borrowers

have invoked the extraordinary jurisdiction of this Court

straightaway under Article 226 of the Constitution of India, as if to

put the blame of the accounts turning Non Performing Accounts

on the Bank itself. The loans in question in favour of the three

borrowers, two firms viz. M/s.Harikrishna Engineering Works

and M/s.Nilkanth Enterprise were sanctioned in the middle of

the year 2015 and after about one year only, it appears that the

accounts turned Non Performing Accounts and the Bank had to

initiate measures for recovery under the aforesaid Special Law

viz. SARFAESI Act. While monitoring these loan accounts, if the

Bank finds that the borrower is not conducting the business in

appropriate manner and not properly utilising the money

advanced to them under the Loan Accounts in an appropriate

manner or no adequate security available in the form of stocks or

margin money, the Court cannot compel the Respondent

Syndicate Bank to first advance more money to the Borrowers

and then seek recovery of more of such outstanding amount

under SARFAESI law. It will be like adding fuel to the fire.

12. The judgments relied upon by learned counsel for the

Appellants Mr. B.M. Mangukiya in the case of Gujarat State

Financial Corporation vs. Lotus Hotels Pvt. Ltd. (supra) is not

applicable to the case in hand at all. In that case, the Term Loan

was sanctioned by the Gujarat State Financial Corporation and

on the basis of faith and promise of funds to be made available by

such sanctioned loan, the entrepreneur made investments and

the Gujarat State Financial Corporation, without any cogent

reasons, refused to disburse the said sanctioned amount of Term

Loan and in these circumstances, the Division Bench of this

Court and the Hon'ble Supreme Court, in an appeal filed by

Gujarat State Financial Corporation, held, on facts, that Gujarat

State Financial Corporation was bound by the principles of

promissory estoppel and could not refuse the disbursement of

the sanctioned loan to the Petitioner M/s. Lotus Hotels Pvt. Ltd.

13. In the facts before us, the Respondent Syndicate Bank has

not only sanctioned the Term Loans which stood disbursed in

accordance with the sanction by the Respondent Syndicate Bank

but also sanctioned a working capital loan, which was bound to

be disbursed in a phased manner only upon the compliance of

various conditions including that of maintaining adequate stocks

for hypothecation, payment of margin money, etc. If the

Respondent Syndicate Bank had found that the Borrowers have

not utilised the earlier disbursement of loan amounts in

appropriate manner and they took a considered decision not to

disburse any further loan amount in the form of working capital

loan, the Court cannot obviously direct the Respondent

Syndicate Bank to do so.

14. We are quite surprised at the stage, at which this prayer for

mandamus to disburse loan is made after initiation of recovery

measures under Section 13 of the SARFAESI Act and which

reveals the real hidden intuition of petitioners behind the

apparently innocuous prayer. Though such recovery action

appears to have been initiated only after a period of one year of

the sanction of the loan, but we cannot hold that per se such

action for recovery under the SARFAESI Act would be illegal. The

case set up by the Appellants on the anvil of promissory estoppel

for disbursement of loan, cannot be allowed to stop the recovery

process under the SARFAESI law.

15. We are also aware of the fact that one M/s.Harikrishna

Engineering Works is a proprietary concern of Mr. Nitin Mehta,

while the other firm ­ M/s.Nilkanth Enterprise is a partnership

firm, in which also said Mr. Nitin Mehta appears to be a partner

along with other family members. Therefore, all the borrowers

who are before us as Appellants, are members of the same family

and the loan accounts in favour of three are, therefore, integrally

connected and the Respondent Syndicate Bank after satisfying

them with the credit worthiness of the said persons only could

have sanctioned these loans in the year 2015. However, later on, if

the Bank finds that the loan amounts are being misused and loan

accounts are not being conducted or operated properly and the

Bank refuses to disburse any further loan amount, the Borrowers

cannot raise the plea of promissory estoppel and first seek the

disbursement of entire loan amount, despite the Bank finding it

to be inexpedient and not in the best interest of the Respondent

Syndicate Bank. Such economic and financial decisions of

experts and financial institutions or banks cannot be subjected

to judicial scrutiny in these type of cases in the writ jurisdiction,

which is dependent only on Affidavits, without the evidence or

facts being proved fully and properly as done in civil trials, as per

the Evidence Act.

16. Therefore, we are of the considered opinion that the writ

petition has been rightly dismissed by the learned Single Judge.

17. As far as the question of alternative remedy under Section

17 of the SARFAESI Act is concerned after its amendment by the

Act No.44 of 2016 with effect from 1.9.2016, the scope of locus of

persons as well as scope of nature of objections, has been

widened in the said law and as against the right of Appeal

provided earlier only to the Borrowers under the said provisions

of Section 17 of the SARFAESI Act, now the substituted words

permit 'Application' by any person (including borrower) to be

filed, who is aggrieved by any of the measures referred to in sub­

section (4) of Section 13 of the SARFAESI Act, which may be taken

by Secured Creditor viz. Banks, etc. and the Debts Recovery

Tribunal having jurisdiction in the matter is bound to decide

such application in accordance with law. Thus, even the plea of

promissory estoppel and desired disbursement of the working

capital loan by the Appellant borrowers could have been raised in

the form of objection against the measures taken under Section

13(4) of the SARFAESI Act before the Debts Recovery Tribunal.

18. The contention raised by the learned counsel for the

Appellants Mr. B.M. Mangukiya that the issue raised before this

Court in the present writ petition could not have been raised

before the Debts Recovery Tribunal, is, therefore, misconceived

and is liable to be rejected. The same is accordingly rejected.

19. For the same reasons, the cognate contention raised by the

learned counsel for the Appellants on the basis of the judgments

of the Hon'ble Supreme Court in the case of Standard Chartered

Bank vs. Dharmendra Bhoi, reported in (2013) 15 SCC 341 and in

the case of Transcore vs. Union of India, reported in (2008) 1 SCC

125, that the Special Tribunal like Debts Recovery Tribunal does

not have any inherent power like the constitutional Court and

therefore cannot deal with the issue raised by him before this

Court, also cannot be accepted.

20. For the aforesaid reasons, we do not find any merit in the

present appeal filed by the Appellants and the same is liable to be

dismissed. The appeal is accordingly dismissed. We make it clear

that if the Appellants avail such alternative remedy before the

Debts Recovery Tribunal, then the Debts Recovery Tribunal may

decide such objections on their own merits in accordance with

law. No order as to costs.

Sd/­ (DR. VINEET KOTHARI, J)

Sd/­ (GITA GOPI, J) Bharat