M/S. Sugarwala Tradelink Private ... vs Authorized Officer, Bank Of India
2021 Latest Caselaw 17783 Guj

     C/SCA/17271/2021                                   ORDER DATED: 26/11/2021




            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
             R/SPECIAL CIVIL APPLICATION NO. 17271 of 2021
==========================================================
              M/S. SUGARWALA TRADELINK PRIVATE LIMITED
                               Versus
                  AUTHORIZED OFFICER, BANK OF INDIA
==========================================================
Appearance:
MR ADITYA A GUPTA(7875) for the Petitioner(s) No. 1,2,3,4,5,6,7
MR MOHIT A GUPTA(8967) for the Petitioner(s) No. 1,2,3,4,5,6,7
for the Respondent(s) No. 1
==========================================================
CORAM:           HONOURABLE MR. JUSTICE BHARGAV D. KARIA
                         Date : 26/11/2021
                          ORAL ORDER

1. Heard, learned Advocate Mr. Mohit Gupta for the petitioners.

2. By this petition under Articles 226 and 227 of the Constitution of India, the petitioners have prayed for the following reliefs;

"25. ...

(a) YOUR LORDSHIPS BE PLEASED to pass a writ of certiorari or any appropriate writ, order or direction to quash the impugned order dated 09.11.2021 passed in SA No. 142 of 2021 by the Ld. Presiding Officer, DRT-II at Ahmedabad as Annexure D to this petition in the interest of justice.

(b) YOUR LORDSHIPS BE PLEASED to pass a writ of certiorari or any appropriate writ, order or direction to quash the impugned order dated 17.03.2021 passed by the Ld. Collector

C/SCA/17271/2021 ORDER DATED: 26/11/2021

which is annexed at Annexure-K as being without jurisdiction, illegal and in breach of the provisions of the SARFAESI Act, in the interest of justice.

(c) YOUR LORDSHIPS BE PLEASED to stay the action of the Respondent bank under the provisions of the SARFAESI Act, 2002 qua the Petitioners including stay of the order dated 17.03.2021 passed by the Ld. Magistrate, Rajkot at Annexure - L (Colly.) and intimation / notice dated 17.08.2021 issued by the Ld. Mamlatdar, Rajkot at Annexure-A and restrain the Respondent bank from dispossessing the petitioners from their premises pending admission, hearing and final disposal of the petition;

(d) YOUR LORDSHIPS BE PLEASED may be pleased to stay the operation and implementation of the order dated 17.03.2021 passed by the Ld. Collector which is annexed at Annexure - K and all subsequent steps pending admission and final disposal of the petition.

(e) ..."

3. The brief facts of the case are that Petitioner No.1-Company availed financial assistance of Rs.5.00/- crore as cash credit limit for working capital from the Respondent-

C/SCA/17271/2021 ORDER DATED: 26/11/2021

Bank, whereas, Petitioner Nos. 2 to 6 are the directors and the guarantors for the financial assistance rendered by the Respondent-Bank to Petitioner No.1.

3.1 It is pertinent to note that the petitioners have not produced on record the sanction letter granting financial assistance to petitioner No.1- Company nor the petitioners have produced any bank statement, which is bound to be provided by the Respondent-Bank of cash credit account and the petitioner has not stated that statement was not provided by the respondent-Bank to the petitioners wherein the amount lent by the Respondent-Bank as cash credit must have been reflected from the day-to-day transactions carried out by the petitioner No.1-Company.

3.2 It appears that pursuant to the cash credit limit sanctioned Petitioner No.1-Company could not maintain and cross the limit of cash credit by not making payment for more than 90 days and therefore, as per the guidelines issued by the Reserve Bank of India from time to time and under the provisions of the Banking Regulation Act, 1949, the account of Petitioner No.1-Company was classified as 'Non-peforming Asset' (in brief, 'NPA'), on 30th April, 2018.

C/SCA/17271/2021 ORDER DATED: 26/11/2021

3.3 The Respondent-Bank issued notice on 1st June, 2018 to Petitioner No.1-Company under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (hereinafter, 'SARFAESI Act') specifying as under;

Nature of Sanctioned Outstanding Facility Limit (Rs.) Dues (Rs.) as on the date of NPA-30-04-2018 Cash Credit 5,00,00,000 5,23,58,343.91 Total 5,00,00,000 5,23,58,343.91

3.4 In the notice issued by the Respondent-Bank, it was also pointed out that the cash credit facility granted by the Respondent-Bank is secured by way of creating charge on various assets.

3.5 It appears that similar notices were also issued to Petitioner Nos. 2 to 7 with regard to the properties, which are mortgaged by the petitioners under Section 13(2) of the SARFAESI Act.

3.6 The petitioners therefore raised objections under Section 13(3-A) of the SARFAESI Act on 30th July, 2018, against the notice issued under Section 13(2) of the SARFAESI Act, which was

C/SCA/17271/2021 ORDER DATED: 26/11/2021

replied by the Respondent-Bank on 1st August, 2018.

3.7 It appears that the Respondent-Bank thereafter approached the District Magistrate by filing application dated 2nd November, 2018, under Section 14 of the SARFAESI Act for taking physical possession of the properties, which are mortgaged by the petitioner with the Respondent- Bank.

3.8 The District Magistrate passed the order dated 27th March, 2021, i.e. after almost one and half a year from the date of the filing of the application under Section 14 of the SARFAESI Act granting assistance to the Respondent-Bank to take the physical possession of the properties mortgaged by the petitioners for availing cash credit facility of Rs.5,00,00,000/- for Petitioner No.1.

3.9 The petitioners also challenged the action of the Respondent-Bank under Section 13(4) of the SARFAESI Act by filing Securitization Application No. 142 of 2021 before the Debts Recovery Tribunal-II, Ahmedabad.

3.10 After the passing of the order by the learned District Magistrate, it appears that the Mamlatdar & Executive Magistrate, Jasdan, issued

C/SCA/17271/2021 ORDER DATED: 26/11/2021

notice for taking physical possession on 28th January, 2021.

3.11 The petitioners therefore filed an application for interim relief before the DRT-II for staying the operation of the order passed by the learned District Magistrate, pending Securitization Application No. 142 of 2021.

3.12 The DRT-II passed the impugned order on 9th November, 2021, rejecting the prayer for interim relief and further ordered to list the matter for hearing on 20th December, 2021.

3.13 Being aggrieved by the aforesaid order, as the Debt Recovery Appellate Tribunal is not available, the petitioners have approached this Court by seeking the reliefs, as referred to herein above.

4. Learned Advocate Mr. Gupta at the oustset submitted that the facts of the petitioners are squarely covered by the decision of the Division Bench of this Court in the case of 'Punjab National Bank Vs. Mithilanchal Industries Pvt. Ltd.'1.

4.1 It was submitted that from the bare perusal of the notice issued by the Respondent-Bank under

1 (2021) 1 GLR 615;

C/SCA/17271/2021 ORDER DATED: 26/11/2021

Section 13(2) of the SARFAESI Act, it becomes clear that the Respondent-Bank has not bifurcated the principal amount and the interest payable by the petitioners, while specifying the amount, as required under sub-Section 3 of Section 13 of the SARFAESI Act.

4.2 It was further submitted that the DRT, while considering the objections raised on behalf of the petitioners brushed aside the decision of this Court and has observed that the Respondent- Bank has described the amount payable by the borrowers as well as the properties, which are mortgaged in the notice issued under Section 13(2) of the SARFAESI Act.

4.3 It was therefore submitted that the Respondent-Bank has not complied with the provisions of Section 13(3) of the SARFAESI Act by not providing the details in the notice. It was submitted that such findings given by the DRT-II are contrary to the findings given by this Court in the above referred decision.

4.4 Except above submissions, learned Advocate Mr. Gupta did not press any other issues which were canvassed before the DRT-II with regard to the classification of account as NPA, taking of symbolic possession under Section 13(4) etc..

C/SCA/17271/2021 ORDER DATED: 26/11/2021

5. Having heard the learned Advocate for the petitioners and having perused the materiel on record, so far as the contention raised on behalf of the petitioners that as the Respondent-Bank has failed to point out the bifurcation of the interest in the notice issued under Section 13(2) is concerned as per the above referred decision of the Division Bench of this Court whether said notice can be enforced or not is required to be appreciated as per the facts which are not in dispute.

6. For the aforesaid purpose, it would be germane to refer to the facts of the case before the Division Bench of this Court, which read as under:

"FIRST POINT : DETAILS TO BE MENTIONED [SECTION 13(3) ]

25. The notice dated 29.12.2014 under Section 13(2) issued by the appellant bank is reproduced below:

            "                                  Date : 29 December 2014
                                By Regd.
            To
                        1            M/s.        Mithilanchal              Industries
                                     Pvt. Ltd., Plot No.503, Road
                                     No.4,            GIDC,     Sachin,           Surat-






 C/SCA/17271/2021                                        ORDER DATED: 26/11/2021



                                    394230.
                   2                Ms/.      Mithilanchal          Industries
                                    Pvt.      Ltd.,     Plot       No.7311/1,
                                    Road      No.75B,       GIDC,        Sachin,
                                    Surat-394230.
                   3                M/s.      Mithilanchal          Industries
                                    Pvt.      Ltd.    2nd      Floor,          Plot
                                    No.C-46/47,         City        Industrial
                                    Estate,          Near       Swaminarayan
                                    Temple, Udhna, Surat-394510.

       Dear Sir,

NOTICE U/S 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI).

Reg : Credit facilities availed by M/s Mithilanchal Industries Pvt. Ltd. our branch Office : Surat-Main.

You, M/s. Mithilanchal Industries Pvt. Ltd. has availed the following credit facilities.

        Sr. No.          Facility        Limit (Rs. Balance O/s as on
                                           in lacs)             30.11.2014
           1           Cash Credit Rs.600.00            Rs.6,44,18,748.00
           2           T/L 1             Rs. 89.36      Rs. 36,12,391.00
           3           T/L 2             Rs. 90.41      Rs. 77,38,309.00
                       Total             Rs.779.77      Rs.7,57,69,448.00







 C/SCA/17271/2021                                            ORDER DATED: 26/11/2021



       Due               to         default            in       payment                of
       installment/interest/principal                              debt,              the

account has been classified as Non Performing Asset on 27.12.2014 as per Reserve Bank of India guidelines.

In the circumstances, we are unable to permit continuation of the above facilities granted. We, therefore, hereby recall the above facilities.

The amount due to the Bank as on 30.;11.2014 is Rs.7,57,69,448.00 (rupees Seven Crore Fifty Seven Lac Sixty Nine Thousand Four Hundred Forty Eight only) with further interest and cost with effective from 01.12.2014 until payment in full (hereinafter referred to as "Secured Debt").

To secure the outstanding under the above said facilities, you have, inter alia, created security interest in respect of the following properties / assets:

         Sr. No.                     Facility                     Security
                   1.                Cash Credit            Hypothecation             of
                                                            Stocks         &      Book
                                                            Debts and entire
                                                            Current            assets
                                                            of the Company
                   2.                      T/L              Hypothecation             of
                                                            Entire Plant and
                                                            Machinery





 C/SCA/17271/2021                                              ORDER DATED: 26/11/2021




       Collateral: ..."


       26.         A     perusal       of        the     said        notice          only

mentions aggregate amount, but does not give the details of the outstanding amount payable by the Borrower. It does not conform to Section 13(3) of the SARFAESI Act, which provision is reproduced here under:

"13(3). The notice referred to in sub- section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non- payment of secured debts by the borrower."

27. The Borrowers - respondents preferred representation / objection dated 02.03.2015 under Section 13(3A) of SARFAESI Act requiring the Secured Creditor to withdraw the notice and to issue a fresh notice in conformity with subsection (3). The Secured Creditor apparently did not find the representation / objections to be acceptable and accordingly communicated to the Borrowers.

28. The words used in Section 13(3) of the SARFAESI Act are "details of the amount payable by the borrower as also the details

C/SCA/17271/2021 ORDER DATED: 26/11/2021

of the secured assets intended to be enforced by the Secured Creditor." So, the notice under Section 13(2) of the SARFAESI Act has to necessarily contain the details on the above two counts.

29. Insofar as the first part is concerned i.e. regarding the amount payable by the borrowers, if the intention of the Legislature was only to provide the total outstanding amount or the aggregate amount outstanding and payable by the borrowers, the language would have been different. It would not have been necessary to incorporate Sub- Section (3) in Section 13 of the SARFAESI Act. In Sub-Section (2) of Section 13 of the SARFAESI Act, it is also mentioned that the Secured Creditor may require the borrower by notice in writing to discharge in full his liabilities to the Secured Creditor. The said liabilities would be mentioned in view of the provisions of Sub-Section (2) itself. But, consciously, Sub-Section (3) was incorporated so as to ensure that the details of the amount payable are provided in the notice. Such details would include the relevant calculations made by the Bank under different heads which had become due and payable at the end of the borrower.

30. There is another reason for incorporating Sub-Section (3). Sub-Section 3(A) gives right

C/SCA/17271/2021 ORDER DATED: 26/11/2021

to the borrower to make a representation or raise an objection against the notice under Sub-Section (2). Unless the borrower has the details of the amounts found due and payable by the Secured Creditor and being demanded as such under a notice under SubSection (2), the borrower would not be in a position to make any representation or raise any objection. It is only when the amounts under different heads are provided to the borrower that it could raise objection under any of the heads where the borrower finds that the amount quantified is not correct. Without there being any details mentioned in the notice, the very purpose of Sub-Section 3(A) would also be lost to a large extent.

31. From a perusal of the material on record and as also discussed not only by the Tribunal but also the learned Single Judge there was an issue raised earlier and pending between the parties regarding the rate of interest at which the Secured Creditor was calculating. According to the borrower, the rate of interest was higher as was being applied by the Secured Creditor than what actually it could claim under the agreement. The learned Single Judge had referred to such facts in paragraphs 5.1 to 6.1 of the judgment. The learned Single Judge had also placed reliance upon the view taken by the

C/SCA/17271/2021 ORDER DATED: 26/11/2021

Patna High Court as also the High Court of Calcutta while interpreting the provisions of Sub-Sections (2) and (3) of Section 13 of the SARFAESI Act.

32. For all the reasons recorded above, the first argument canvassed before us being devoid of any merits is accordingly rejected."

7. From the facts which were presented before the Division Bench of this Court, it appears that the financial assistance rendered by the Bank to Mithilanchal Industries Pvt. Ltd. was by way of cash credit facility as well as term loan and therefore, there was a composite credit financial assistance was given by the Respondent-Bank on account of the working capital as well as the term loan for purchase of the capital assets.

8. In such circumstances, it was not known to the borrower as to what was the amount, which was shown as payable in the notice issued under Section 13 (2) of the SARFAESI Act, towards outstanding term loan and accrued interest thereon as aggregate amount as shown to be payable as on 31st November, 2014, which is apparent from the notice issued under Section 13(2) of the SARFAESI Act.

C/SCA/17271/2021 ORDER DATED: 26/11/2021

9. In the facts of the present case, it is not in dispute that the only financial assistance rendered by the Respondent-Bank was towards the cash credit facility for working capital to the tune of Rs.5,00,00,000/- and therefore, there was no need for the Respondent-Bank to bifurcate outstanding dues containing the interest and the principal amount which was shown to be payable as on 30th April, 2018. It is apparent from the amount of Rs.5,23,58,343.91/- that it includes interest of Rs.23,58,343.91/-, over and above the cash credit limit sanctioned by the Respondent- Bank of Rs.5,00,00,000/-.

10. Moreover, the petitioners were very well aware of the rate of interest charged by the Respondent-Bank, as per the bank statement which is available from the Respondent-Bank. The petitioner has not placed on record bank statements of cash credit amount so as to point out that the petitioners were aware about the interest of the running cash credit account.

11. In view of the above, the reliance placed on the decision of the Division Bench of this Court in 'Mithilanchal Industries Pvt. Ltd.'(Supra), would not be applicable so far as the provisions of Section 13(3) of the SARFAESI Act is concerned.

C/SCA/17271/2021 ORDER DATED: 26/11/2021

12. The objection raised by learned Advocate Mr. Gupta with regard to non-compliance of the provisions of Section 13(3) of the SARFAESI Act is concerned, it would be relevant to refer to Section 13(3) of the SARFAESI Act, which reads as under;

"13. ...

(3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. 1[(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal

C/SCA/17271/2021 ORDER DATED: 26/11/2021

under section 17 or the Court of District Judge under section"

13. As held by the Division Bench of this Court in 'Mithilanchal Industries Pvt. Ltd.'(Supra), two conditions are required to be fulfilled, viz.

(i) the details of the amount payable by the borrower and (ii) the secured assets intended to be enforced by the secured creditor in the event of non-payment of loan amount by the borrower.

14. From the bare perusal of the impugned notice under Section 13(2) of the SARFAESI Act it is discernible the details of the amount payable by the borrower as the amount which was sanctioned as cash credit was Rs.5,00,00,000/- which is mentioned as the principal amount and the amount payable by the borrower, i.e. petitioner No.1-

Company, is also mentioned as Rs.5,23,58,343.91/-. In such circumstances, the provisions of Section 13(3) of the SARFAESI Act prima facie are duly complied with by the Respondent-Bank as is rightly held by the DRT-II.

15. For the foregoing reasons, this petition fails and is accordingly, dismissed.

(BHARGAV D. KARIA, J) UMESH/-