Bajaj Finance Ltd. Thro ... vs M/S Pragati Pharma
2022 Latest Caselaw 2112 Guj

    C/SCA/20224/2021                               JUDGMENT DATED: 23/02/2022




             IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

              R/SPECIAL CIVIL APPLICATION NO. 20224 of 2021


FOR APPROVAL AND SIGNATURE:


HONOURABLE MR. JUSTICE BHARGAV D. KARIA

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1    Whether Reporters of Local Papers may be allowed                   NO
     to see the judgment ?

2    To be referred to the Reporter or not ?                            NO

3    Whether their Lordships wish to see the fair copy                  NO
     of the judgment ?

4    Whether this case involves a substantial question                  NO
     of law as to the interpretation of the Constitution
     of India or any order made thereunder ?

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        BAJAJ FINANCE LTD. THRO AUTHORISED OFFICER ANIKET
                         PARESHBHAI DESAI
                               Versus
                   M/S PRAGATI PHARMA & 2 other(s)
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Appearance:
MR P.R.ABICHANDANI FOR MR CR ABICHANDANI(2421) for the
Petitioner(s) No. 1
MR MAUNISH T PATHAK(5892) for the Respondent(s) No. 1,2,3
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    CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA

                               Date : 23/02/2022

                              ORAL JUDGMENT

Heard learned advocate Mr.P.R.Abichandani for learned advocate Mr.C.R.Abichandani for the petitioner and learned advocate Mr.Maunish T. Pathak for the respondents.

C/SCA/20224/2021 JUDGMENT DATED: 23/02/2022

1. Rule, returnable forthwith. Learned advocate Mr.Maunish Pathak waives service of notice of rule on behalf of the respondents.

2. Having regard to the controversy arising in this petition in narrow compass, with the consent of the learned advocates for the respective parties, the petition is taken up for final hearing today.

3. By this petition under Article 227 of the Constitution of India, the petitioner has prayed for the following reliefs :

"A. To quash and set aside the impugned interim order dated 10.11.2021 passed by the Ld. D.R.T.-l, Ahmedabad in S.A. NO.144 of 2021 and pleased to hold that the SARFAESI actions initiated by the Petitioner is valid, legal and in accordance with law.

B. To stay pending the admission, hearing, and final disposal of the present petition, the operation and implementation of the impugned interim order dated 10.11.2021 during the pendency of the petition.

C. To grant ad-interim relief in terms of para-B above.

D. To provide for the costs of this Special Civil Application.

E. To pass such other and further orders as this Hon'ble Court deems fit and proper in the facts and circumstances of the case."

3.1. The brief facts of the case are that the respondent No.1-M/s. Pragati Pharma and M/s. Mayur Medical Agencies (Partnership Firms) having

C/SCA/20224/2021 JUDGMENT DATED: 23/02/2022

common partners availed financial assistance of Rs.75 Lakhs and Rs.38 Lakhs, i.e. total Rs.1,13,00,000/- from the petitioner and executed the loan agreements i.e. No.418LAP17901134 and No.418LAP17932185 respectively.

3.2. The respondent No.3 is a mortgagor in both the loan accounts and has executed a mortgage deed in respect of both the loan accounts. In both the loan agreements, the parties to the loan agreements are same as they are co-borrowers.

3.3. The respondents committed default in repayment of the loan taken by them in respect of both the loan accounts and therefore, the petitioner classified the same as Non-Performing Asset (NPA) on 30th September, 2018.

3.4. The petitioner thereafter issued demand notice dated 13th March, 2019 under Section 13(2) of the Securitisation and Reconstructions of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'the SARFAESI Act') for recovery of Rs.1,01,98,120/- with further interest and cost.

3.5. The respondent raised objections by letter dated 15th April, 2019 which was replied by the petitioner on 25th April, 2019.

3.6. The petitioner thereafter took symbolic

C/SCA/20224/2021 JUDGMENT DATED: 23/02/2022

possession of the secured assets on 3rd June, 2019 on failure of the respondents to pay the amount as per the demand notice.

3.7. The petitioner filed Application under Section 14 of the SARFAESI Act before the District Magistrate, Ahmedabad on 2nd July, 2019.

3.8. The respondents filed Securitisation Application No.144 of 2019 before the Debt Recovery Tribunal-I, Ahmedabad (DRT) on 17.07.2019.

3.9. The District Magistrate, Ahmedabad passed an order dated 25th August, 2021 under Section 14 of the SARFAESI Act providing assistance to the petitioner to take physical possession of the secured assets.

3.10. The DRT on an preponement application filed on behalf of the respondents as the petitioner was to take possession of the secured assets, passed the following order on 26.10.2021 :

"Ld. Counsel Mr.A. S. Panesar for the Applicants is present.

Ld. Counsel R. D. Shah for the Respondent Financial Institution is present.

Ld. Counsel for the Applicants submitted that the - Respondent Bank is going to take possession of the mortgaged property tomorrow, as such arguments may be heard on interim relief.

C/SCA/20224/2021 JUDGMENT DATED: 23/02/2022

Heard arguments of Ld. Counsel for both the parties at length on interim reliet.

List the matter for pronouncement of order on Interim Relief on 10/11/2021.

In the meanwhile, the Respondent is directed not to take any coercive action qua the possession of the property in question till pronouncement of order on interim relief."

3.11. The impugned order dated 10.11.2021 was pronounced by the DRT-I and directed the petitioner not to take any coercive action qua the possession of the property in question till the next date of hearing which is extended from time to time.

3.12. The petitioner has therefore filed this petition with the aforesaid prayers.

4.1. Learned advocate Mr.Abichandani for the petitioner submitted that the RBI notification dated 05.08.2016 is wrongly interpreted by the DRT against the provisions of the Master Circular of the RBI. It was pointed out that the notification dated 05.08.2016 issued by RBI contain list of the non-banking financial institutions listed in the said notification which are covered under clause (f) of Section 45- I of the Reserve Bank of India Act, 1934 having asset of five hundred crore rupees and above as per the last audited balance sheet as financial institutions and permitted such NBFCs to effect recovery of the NPA accounts as per the

C/SCA/20224/2021 JUDGMENT DATED: 23/02/2022

provisions of Sections 13 to 19 of the SARFAESI Act with a stipulation that such action can be taken for securing payments of secured debts with principal amount of Rs.1 crore and above.

4.2. It was submitted that the said notification has not stated about the applicability of the limit of Rs.1 Crore per loan account. Reliance was placed on the paragraph No.2.2.2. of the Master Circular of the RBI dated 4th July, 2007 and submitted that so far as treatment of NPAs are to be concerned, the same is to be given as per borrower wise and not facility wise.

4.3. It was therefore submitted that the Tribunal has committed an error in applying of the notification dated 05.08.2016 by considering two loan accounts separately in disregard to the facts to the effect that the petitioner advanced loan to the same borrowers by two different loan accounts and therefore as per the clause 2.2.2 of the Master Circular of the RBI the default committed in both the loan accounts are to be considered as cumulatively and therefore the limit of 1 crore cannot be applied to each loan account separately. It was therefore submitted that there is no violation of the notification dated 05.08.2016 and the DRT could not have granted interim-relief relying only on such erroneous interpretation of the notification dated 05.08.2016.

C/SCA/20224/2021 JUDGMENT DATED: 23/02/2022

5.1. On the other hand, learned advocate Mr.Pathak submitted that the respondents have taken loan in two different loan accounts and in both the loan accounts there are separate loan agreements and therefore DRT has rightly considered the case of the respondents by applying the limit of Rs.1.00 Crore prescribed under notification dated 05.08.2016 per loan account.

5.2. It was further submitted that even otherwise the petitioner has an alternative efficacious remedy under Section 18 of the SARFAESI Act to challenge the order passed by the DRT before the DRAT. It was submitted that now the Central Government has appointed the Chair Person of the DRAT who is likely to take charge shortly and therefore petitioner should be relegated to avail the alternative efficacious remedy instead of entertaining the petition on merits by this Court while exercising jurisdiction under Article 227 of the Constitution of India. It was submitted that the Securitisation Application No.144 of 2019 is pending for adjudication before the Tribunal and therefore, any observation made by this Court would preclude the respondents from availing the right of Appeal before the Appellate Authority if the DRT holds against the respondents on merits by upholding the action of the petitioner to initiate proceedings under Sections 13 to 19 of the SARFAESI Act.

C/SCA/20224/2021 JUDGMENT DATED: 23/02/2022

6. Having heard the learned advocates for the respective parties and on perusal of the impugned order dated 10.11.2021 passed by the DRT together with notification dated 05.08.2016 and Master Circular of the RBI on Income Recognition Asset Classification, Provisioning and other Related Matters, it appears that the Tribunal has misinterpreted the notification dated 05.08.2016 by applying the limit of Rs.1 Crore for each loan account and not the borrower.

7. On perusal of the loan against the property agreements executed by the petitioner with the respondents which are placed on record at Annexure-B collectively as well as the mortgaged deed executed by the respondent No.3 for the secured assets, it appears that the loan is given to the co-borrowers in name of M/s.Pragati Pharma whose partners are the respondent No.2 and his brother and other co-borrowers namely Bhadresh Shah, Kinnari shah and Mayur Medical Agencies, so far as the loan of Rs.38 Lakhs is concerned. Whereas, for the loan of Rs.75 Lakhs is concerned, the same persons are the borrowers and co-borrowers. Moreover, the properties which are mortgaged for both the loans is also same i.e. Plot No.20/A and 20/B Asha Co-operating Housing Society, near Sanand Police Station, Saland, Ahmedabad, 380058. (Page Nos.28 and 46 of the petition).

C/SCA/20224/2021 JUDGMENT DATED: 23/02/2022

8. It appears that the Tribunal without verifying these documents on record, interpreted the notification dated 05.08.2016 so as to apply the limit of Rs.1.00 Crore prescribed therein separately for each loan account.

9. It would therefore be germane to refer to the notification dated 05.08.2016 which reads as under :

"MINISTRY OF FINANCE:

(Department of Financial Services) NOTIFICATION New Delhi, the 5th August, 2016]

S.0. 2641(E).-In exercise of the powers conferred under sub-clause (iv) of clause (m) of sub-section (1) of section 2 read with section 31A of the Securitisation and Reconstruction of Financial Assets and Enforcement of Stcurity Interest Act, 2002 (54 of 2002), the Cental Government hereby specifies the following non-banking financial companies. which are covered under clause (f) of section 45-1 of the Reserve Bank of India Act, 1934 (2 of 1934) and registered with Reserve Bank of India, having asset of five hundred crore rupees and above as per their last audited balance sheet, as "financial institutions" and hereby directs in public interest that all provisions of the said Act, shall apply to such financial institution with the exception that the provisions of sections 13 to 19 shall apply only to such security interest which is obtained for securing repayment of secured debt with principal amount of rupees one crore and above. "

10. It is also necessary to refer to the paragraph No.2.2.2 of the Master Circular of 2007 of the RBI which reads as under :

C/SCA/20224/2021 JUDGMENT DATED: 23/02/2022

"2.2.2 Treatment of NPAs-Borrower-wise and not Facility-wise

(i) In respect of a borrower having more than one facility with a bank, all the facilitie granted by the bank will have to be treated as NPA and not the particular facility or pa thereof which has become irregular.

(ii) However, in respect of consortium advances or financing under multiple banking arrangements, each bank may classify the borrowal accounts according to its own record of recovery and other aspects having a bearing on the recoverability of the advances."

11. On conjoint reading of both the above notification dated 05.08.2016 read with clause 2.2.2 of the Master Circular of the RBI, it cannot be said that the financial assistance which was provided by the petitioner in two different loan accounts would be considered separately for applying the limit of Rs.1 Crore to enable the petitioner to initiate the proceedings under SARAFESi Act as per the notification dated 05.08.2016.

12. As per the Master Circular of the RBI, so far as the treatment of NPA to be given by the Bank (in the present case by NBFC) is per borrower wise and not per facility wise or loan wise. It is clear from the Clause 2.2.2 that even though there are two different facilities given to the borrower and NPA occurs only in one facility then also the Bank or financial institution has to consider all the facilities as NPA and initiate action for recovery accordingly. Only exception

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is in case of consortium advances or financing under multiple banking arrangements where each bank is given an independence to classify the borrower accounts according to its own record of recovery and other aspects having a bearing on the recoverability of the advances.

13. In view of the Clause 2.2.2 of the Master Circular of the RBI read with notification dated 05.08.2016 permitting the petitioner to initiate SARFAESI proceedings if the borrowing are more than Rs.1 Crore, this Court is of the opinion that the petitioner has rightly issued the notice dated 13th March, 2019 under Section 13(2) on the basis of the notification dated 05.08.2016 considering both the loan accounts cumulatively for recovery of Rs.1,01,98,120/-.

14. It is pertinent to note that the respondents, though have availed the financial assistance of more than Rs.1 Crore from the petitioner-Bank, has remained negligent in making payment even after issuance of notice for recovery by the petitioner on 13th March, 2019, i.e. for almost three years the respondents have not shown any willingness to make any payment for the outstanding dues even for principal amount of the financial assistance provided by the petitioner.

15. In view of the foregoing reasons, the petition is allowed. The impugned order dated

C/SCA/20224/2021 JUDGMENT DATED: 23/02/2022

10.11.2021 passed by the Tribunal whereby, the petitioner-Bank is directed not to take any coercive action qua the possession of the property in question is hereby quashed and set aside. Rule is made absolute to the aforesaid extent.

16. It is made clear that the observations made in this order are only primafacie with respect to grant interim-relief and the petitioner and the respondents are entitle to raise all the contentions before the DRT in the pending proceeding of Securitisation Application which may be considered by the DRT in accordance with law. Direct service is permitted.

(BHARGAV D. KARIA, J) PALAK