Gujarat High Court
Bhavdipbhai Arunbhai Dave vs Kotak Mahindra Bank Limited on 20 January, 2022
Bench: Bhargav D. Karia
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 16428 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
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the 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 ?
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BHAVDIPBHAI ARUNBHAI DAVE
Versus
KOTAK MAHINDRA BANK LIMITED
================================================================
Appearance:
MR PERCY KAVINA,LD.SR.ADV. WITH MR AS PANESAR(5390) for the
Petitioner(s) No. 1,2
MR LALIT M PATEL(2239) for the Respondent(s) No. 1
================================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 20/01/2022
ORAL JUDGMENT
Heard learned Senior Advocate Mr.Percy Kavina
assisted by learned advocate Mr.A.S.Panesar for
the petitioners and learned advocate Mr.Lalit M.
Patel for the respondent-Bank.
1. Rule, returnable forthwith. Learned advocate
Mr.Patel waives service of notice of rule for the
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
respondent-Bank.
2. Considering the issue raised in this petition
in narrow compass, with the consent of the
learned advocates for the respective parties, the
matter is taken up for hearing today.
3. By this petition under Article 227 of the
Constitution of India, the petitioners have
prayed for the following reliefs :
"(A)To issue a writ of certiorari or any other
appropriate writ, order or direction in the nature of
certiorari or any other writ for quashing and setting
aside the impugned order dated 16/10/2021 (Annexure-
A) passed by the Debts Recovery Tribunal-2, Ahmedabad
in SA No.94 of 2020 and restrain the Respondent from
taking any further action under the provisions of the
SARFESI Act till the final hearing of SA No.94 of
2020 pending before the DRT-2, Ahmedabad.
(B)Pending admission, hearing and final disposal of
this Petition the Respondent be directed not to take
any further actions against the property of the
Petitioners under the provisions of the SARFESI Act
and to direct the Respondent to maintain status quo
qua the property in question.
(C) Be pleased to grant ex-parte ad-interim reliefs
in terms of Para 7-B as stated supra.
(D)To grant any other and further appropriate and
just relief(s) as may be deemed necessary & fit on
the facts and circumstances of case
(E) The cost of this petition may be awarded.
(F) The Honourable Court may be further pleased to
quash and set aside the impugned notice dated
21.12.2021 issued by Executive Magistrate and City
Mamlatdar, Bhavnagar.
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
(G) Pending admission, hearing and final disposal of
the present petition, the execution and
implementation of impugned Notice dated 21.12.2021
issued by Executive Magistrate and City Mamlatdar,
Bhavnagar my kindly be stayed."
4.1. By this petition, the petitioners have
challenged the order dated 16th October, 2021
passed by the Presiding Officer of the Debt
Recovery Tribunal-II, Ahmedabad in Securitisation
Application No.94 of 2020 filed by the
petitioners refusing to grant interim-relief to
the petitioners. The petitioners availed the
financial assistance from the respondent-Bank in
the year 2014 as the Overdraft facility of Rs.100
Lakhs was sanctioned vide sanctioned letter dated
12th August, 2014.
4.2. Thereafter, the respondent-Bank by sanction
letter dated 5th July, 2017 converted the
Overdraft facility to Term Loan Facility of Rs.88
Lakhs with an Equated Monthly Installment
(EMI) of Rs.2,09,351/- to be paid in 60
installments by the petitioners.
4.3. The petitioners however, could not pay the
EMI in time and therefore, the Term Loan Account
of the petitioner was declared as Non Performing
Asset (for short 'the NPA') in the year 2018.
4.4. The respondent Bank issued a Notice under
Section 13(2) of the Securitization &
Reconstruction of Financial Assets and
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
Enforcement of Security Interest Act, 2002 (for
short 'the SARFAESI Act') on 14th February, 2019
wherein, the details of the advance financial
assistance given by the respondent-Bank is
narrated as under :
"1. We, Kotak Mahindra Bank Limited (hereinafter
referred to as."KMBL") at the request of You. No.-1,
("Borrower") have, granted below mentioned overdraft
facility aggregating to Rs. 88,00,000.00/- Lakhs
under Loan Agreement No.RHB681268, which was duly
signed & accepted by You No.-1. (Hereinafter You No.-
1 referred to as "Borrower" herein),
Sr. No. Nature Limit (INR in
of Lacs)
Facility
1. Overdraft 88,00,000.00
Facility
Total 88,00,000.00
Funded
(Hereinafter referred to as "Loan")
2. Subsequent to above, You No.1 have entered into a
Master Facility Agreement with KMBL along with other
documents/agreement including, but not limited. to
Demand Promissory Note, Take Delivery Letter and
other document enteréd/ executed pursuant thereto in
respect of the Loan ("Facility Documents for Loan").
3. That the said Loan is secured by Guarantors You
No. 2 to 7 (hereinafter individually referred to as
"Co-Borrower" for which You Nos.-2 to 7 executed
facility agreement thereby assuring the repayment of
the Loan availed by the You No.-1.
4.That the Rate of Interest towards the-said facility
was 15%."
4.5. The respondent-Bank thereafter filed an
Application being SARFAESI Case No.58 of 2019
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
under Section 14 of the SARFAESI Act for taking
physical possession of the property mortgaged by
the petitioners.
4.6. It appears that the District Magistrate
passed an order on 27th January, 2020 under
Section 14 of the SARFAESI Act.
4.7. The petitioners thereafter, preferred
Securitisation Application No.94 of 2020 before
the Debt Recovery Tribunal-II (for short 'the
DRT') under Section 17 of the SARFAESI Act.
4.8. In the memo of the Securitisation Application
filed before the Tribunal, the petitioners raised
various ground including the ground that the
demand notice dated 14th February, 2019 was not
served upon the petitioners as per Rule 3 of the
Security Interest (Enforcement) Rules, 2002 (for
short 'the Rules, 2002') as the notice under
Section 13(2) was not sent to the last known
address of the petitioners depriving the
petitioners to file their objections to such
notice. It was further contended by the
petitioners that respondent-Bank therefore,
cannot take possession of the mortgaged property
on the basis of the defective demand notice.
4.9. It was also contended by the petitioners that
the notice issued by the respondent-Bank under
Section 13(2) is also defective as no details are
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
provided with regard to the principle amount and
interest accrued on such principle amount.
4.10. The respondent-Bank filed reply before the
DRT contending that the petitioners never raised
any objections to the demand notice issued by the
respondent-Bank and the contentions raised by the
petitioners are technical and trivial in nature
and therefore, the same cannot be considered for
the purpose of granting any stay against the
order under Section 14 of the SARFAESI Act.
4.11. The DRT by impugned order dated 16.10.2021,
rejected the prayer for interim-relief and
directed the respondent-Bank to proceed in
accordance with the provisions of the SARFAESI
Act and Rules framed thereunder, to take the
possession of the mortgage property of the
petitioners. While considering the submissions
made on behalf of the petitioners as well as the
respondent-Bank, the DRT relied upon the decision
of the Apex Court in case of L & T Housing
Finance Limited V/s. Trishul Developers and
another decided on 27th October, 2020 in Civil
Application No.3413 of 2020 and came to the
conclusion that the petitioners have not been
able to make a prima-facie case in their favour
so as to restrain the respondent-Bank from taking
physical possession of the property in question
as the objections raised by the petitioners
before the DRT as well as before the District
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
Magistrate are technical and trivial in nature
and therefore, the respondent-Bank cannot be
prevented from taking physical possession of the
mortgaged property as the respondent-Bank has to
recover its legitimate dues of more than Rs.1
Crore as on 14th February, 2019 as per the demand
notice issued under Section 13(2) of the SARFAESI
Act. It was also observed that the DRT is
empowered to restore the possession of the
property in question under Section 17(3)(b) of
the SARFAESI Act in the event of the applicants
succeeding in the Securitisation Application on
its logical conclusion.
5.1. Learned Senior Advocate Mr.Kavina submitted
that the Tribunal has failed to consider the
contentions raised by the petitioners in its true
perspective as the notice issued by the
respondent-Bank under Section 13(2) of the
SARFAESI Act is not in accordance with the
provisions of Section 13(3A) of the SARFAESI Act.
It was submitted that the demand notice shows
that it was sent in the name of the petitioner
No.1 but with the address of Mr.Alpesh Moradiya
and therefore, the respondent-Bank has failed to
serve the notice to the petitioner No.1 at the
last known address to the respondent-Bank. It was
also contended that the respondent-Bank has also
not provided bifurcation of the amount claimed
towards principle and interest by mentioning all
debits and credits. In support of his
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
submissions, learned Senior Advocate Mr.Kavina
relied upon the decision of the Division Bench of
this Court in case of Punjab National Bank Versus
M/s. Mithilanchal Industries Pvt. Ltd. in Letters
Patent Appeal No.159 of 2020 rendered on 17 th
August, 2020 to submit that the respondent-Bank
is bound to comply with the provisions of Sub-
sections 2, 3 and (3A) of Section 13 of the
SARFAESI Act.
5.2. It was submitted that failure to comply with
the provisions of Sub-section 3 of Section 13,
the demand notice issued by the respondent-Bank
cannot be enforced as the liability itself is not
validly communicated by the respondent-Bank
because on perusal of the demand notice, it is
revealed that the same is given for the Overdraft
facility whereas, there was no Overdraft facility
of Rs.88 Lakhs taken by the petitioners from the
respondent-Bank but it was a Term Loan which was
sanctioned by the respondent-Bank in the year
2017 by converting the Overdraft facility.
Therefore, the respondent-Bank has stated
incorrect facts in the demand notice which cannot
be sustained as per the provisions of Sub-section
3 of Section 13 of the SARFAESI Act.
6.1. On the other hand, learned advocate Mr.Lalit
Patel submitted that the petitioners never raised
any objection to the demand notice issued by the
respondent-Bank and therefore, the respondent-
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
Bank has not committed any mistake by not giving
bifurcation of principal and interest amount. It
was submitted that there is a typographical error
in the notice issued under Section 13(2) as
instead of "Term Loan", "Overdraft" is mentioned.
It was therefore submitted that such
typographical error is technical and trivial in
nature and hence, the DRT has rightly considered
the decision of L & T Housing Finance Limited
(Supra) for rejecting the contentions raised on
behalf of the petitioners.
6.2. In support of his submissions, learned
advocate Mr.Patel relied upon the following
averments made in the affidavit-in-reply on
merits :
7.1. I say that the Respondent Bank has filed the
present reply raising preliminary objections about
maintainability of the petition on the ground of
alternate remedy available before the DRT under
Section 18 of the SARFAESI Act and reserve its right
to file a detailed reply if necessary.
7.2. I say that the averments, statements and
allegations made by the Petitioners in present
Petition are not sustained and it can not be
considered in the present writ petition and it is
denied by the answering Respondent bank, unless
specifically admitted herein. I say that in response
to the submissions mad in the Petition, I crave
leaver to rely upon the Affidavit in Reply filed by
the Bank ( page 103 to 155 of the Petition) and the
same is not reiterated herein for the sake of
brevity.
It is stated that there is no dispute about availing
loan, creating security interest and default in
payment of the installments and classification of the
account as NPA and taking measures by the Respondent
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
Bank under the provisions of SARAFESI Act to enforce
the security interest. I say that the present
petition challenging the measures taken under
SARFAESI Act are not maintainable before this Hon'ble
Court as per the settled law in as much as there is
no illegality in the meastires taken by the
Respondent Bank as per the law and there is no
infirmity in the order passed by the Hon'ble Debt
Recovery Tribunal which is under challenge since an
alternate remedy is available under Section 18 of the
SARFAEST Act.
7.3 That the actions initiated as per law though
alleged to be harsh, it is in accordance with the
powers enshrined under law and there is no
illegalities and hence the present petition is
nothing but misuse of process of law and not
sustained merely by raising technicalities in view of
the huge outstanding dues agreed to be paid but not
paid within a stipulated time. I say that if
Petitioners is aggrieved by the measures taken by the
Bank, they ought to have filed an Appeal under
Section 18 of the SARFAESI Act before the Debt
Recovery Tribunal within 30 days but instead of that
the Petitioners have preferred to file the present
Special Civil Application before this Hon'ble Court
which is not maintainable as per the law and the
catena of judgments cited hereinbefore.
7.4 I further say that the Petitioners be put to
condition to deposit at least 50% amount of the debt
as envisaged under provisions of Section 18 of the
Act. That under the guise of non availability of the
Bench the Petitioners shall not be allowed to
circumvent the statutory intent to deposit the amount
required to be deposited while challenging the order
passed by the Hon'ble Tribunal.
7.5 I further say that as observed by the Hon'ble
Tribunal in last para of its impugned order, the
Petitioners are at liberty to seek restoration of
their Property by approaching the Respondent Bank in
view of the provisions of Section 13(8) of the
SARFAESI Act to tender an amount of the dues of the
secured creditor with cost and expenses incurred py
them before the date of notice for auction sale.
7.6 I further say that even otherwise the
technicalities raised by the Petitioner are not
sustained now in view of the judgments cited by the
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
Respondent bank in its reply in para 18 which are
reproduced as follows ;
"I say that a person who seeks equity must come
with clean hands. The Applicant cannot have equity
without discharging their obligations. Even the
Hon'ble Supreme Court in the case of Indian Bank
Vs. M/s Blue Jaggers Estates Ltd. has recently held
that;
'The Court cannot loose sight of the fact that
the bank is a trustee of public funds. It cannot
compromise the public interest for benefiting
private individuals. Those who take loan and
avail financial assistance from the Bank are duty
bound to repay the amount strictly in accordance
with the terms of contract. Any laps in such
matters has to be viewed seriously and the bank
is not only entitled but duty bound to recover
the amount by adopting all legally permissible
methods.'
I further say that the apex court has recently in
case of Authorised Officer State Bank of Travancore
and Another Vs. Mathew K. C. (Civil Appeal No. 1281
of 2018) has held in para 16 to 19 as follows;
"16. It is the solemn duty of the Court to apply
the correct law without waiting for an objection
to be raised by a party, especially when the law
stands well settled. Any departure, if
permissible, has to be for reasons discussed, of
the case falling under a defined exception, duly
discussed after noticing the relevant law. In
financial matters grant of ex-parte interim
orders can have a deleterious effect and it is
not sufficient to say that the aggrieved has the
remedy to move for vacating the interim order.
Loans by financial institutions are granted from
public money generated at the tax payers expense.
Such loan does not become the property of the
person taking the loan, but retains its character
of public money given in a fiduciary capacity as
entrustment by the public. Timely repayment also
ensures liquidity to facilitate loan to another
in need, by circulation of the money and cannot
be permitted to be blocked by frivolous
litigation by those who can afford the luxury of
the same. The caution required, as expressed in
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
Satyawati Tandon (supra), has also not been kept
in mind before passing the impugned interim
order:-
That the Respondent bank upon the judgement of
Hon'ble Allahabad High Court in case of Rafeeq
Ahmad Vs. State of UP (MANU/UP/0878/1999) wherein
it has been held that ;
"the persons who are not interested in repayment
of the loan, must nor be permitted to play with
the procedures of law."
That the Applicants (borrower) did not deny
advancement of loan, execution of security
documents, their liability and compliance of the
procedure being followed by the secured creditor
(Respondent) prescribed under the SARFAESI Act. It
is settled by the Apex Court recently in case of
L&T HOUSING FINANCE LIMITED Vs. MS _ TRISHUL
DEVELOPERS AND ANR vide judgment dated 27.10.2020
that when the action has been taken by the
Respondent company as per the procedure prescribed
by law and the person affected has a knowledge
leaving no ambiguity or confusion in initiating
proceedings under the provisions of the SARFAESI
Act by the secured creditor, Such action taken
thereof cannot be held to be bad in law merely on
raising a trivial objection which has no legs to
stand unless the person is able to show any
substantial Prejudice being caused on account of
the procedural lapse as prescribed under the Act or
the rules framed thereunder. Copy of the Judgment
is annexed (emphasis Supplied to para 19 to 21
reproduced herein below )
18. It may be relevant to note that the
respondents (borrower) did not deny advancement
of loan, execution of Facility Agreement, their
liability and compliance of the procedure being
followed by the secured creditor (appellant)
prescribed under the SARFAESI Act.
19. In the facts and circumstances, when the
action has been taken by the competent authority
as per the procedure prescribed by law and the
person affected has a knowledge leaving no
ambiguity or confusion in initiating proceedings
under the provisions of the SARFAESI Act by the
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
secured creditor, in our considered view, such
action taken thereof cannot be held to be bad in
law merely on raising a trivial objection which
has no legs to stand unless the person is able to
show any substantial prejudice being caused on
account of the procedural lapse as prescribed
under the Act or the rules framed thereunder
still with a caveat that it always depends upon
the facts of each case to decipher the nature of
the procedural lapse being complained of and the
resultant prejudiced if any, being caused and
there cannot be a straitjacket formula which can
be uniformly followed in all the transactions.
20. Adverting to facts of the instant case, we
are of the view that the objection raised by the
respondents was trivial and technical in nature
and the appellant (secured creditor) has complied
with the procedure prescribed under the SARFAESI
Act. At the same time, the objection raised by
the respondents in the first instance, at the
stage of filing of a Securitisation Application
before DRT under the SARFAESI Act is a feeble
attempt which has persuaded the Tribunal and the
High Court to negate the proceedings initiated by
the appellant under the SARFAESI Act, is
unsustainable more so, when the respondents are
unable to justify the error in the procedure
being followed by the appellant (secured
creditor) to be complied with in initiating
proceedings under the SARFAESI Act"
8. That with response to para 5 of the Petition,
it is denied that the Petitioners have no alternate
or efficacious remedy except to approach before this
Hon'ble Court. It is denied that the remedy to
approach the Ld. Appellate Tribunal is neither
possible not appropriate considering the fact that
the Petitioners is not denying the repayment of the
due amount. It is denied that the order of rejection
Of interim relief is completely against the law laid
down by the Division Bench of this Hon'ble Court
suffers from the judicial error or the order passed
by the Hon'ble DRT is per-se violation of rights of
Petitioners as alleged when the statute specifically
ensuring the rights to enforce the security interest
under the SARFAESI Act within a stipulated time.
With reference to relief sought in para 7, it is
respectfully submitted that the present Petition does
not survive on 7 aforesaid submissions and since
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
there is a alternate remedy before the Appellate
Tribunal to raise such issue. Respondent Bank
respectfully submit that the Petitioners nave not
paid the entire amount as per the Demand notice under
Section 13 (2) of the Securitization Act, 2002
against the property in question being secured
creditor to recover the secured dues/public money.
The respondent as a Secured Creditor has taken lawful
steps to recover its dues and has taken proper steps
to take possession of the said secured assets and the
contentions raised in the Petition simply indicates
sheer technicalities and the Petitioners have no
intent to clear the dues in as much as they have
failed to make the payment inspite of granting
sufficient time since the account was classified a
NPA on 08.02.2018 and more than two and half year is
passed and the Petitioners is resorting to
manipulative and delaying tactics merely on by
raising evasive Submissions which are not sustained
in the eyes of law and therefore, it is respectfully
submitted that this Hon'ble Court may take note of
the fraudulent attempts being an to frustrate the
recovery of public money. I say that no case is made
out by the Petitioners to entertain the Present
Petition under writ jurisdiction.
It is respectfully submitted that in the light of the
foregoing and under the circumstances explained
hereinabove, it is submitted that the Petitioners
have not been able to make out a case warranting
intervention by this Hon'ble Court under Article 14,
19 and 226 of the Constitution of India and/or any
other provisions under the Securitisation Act, 2002
under which the present petition is preferred. The
Petitioners are not entitled to any relief claimed in
the Petition when they have not discharged their
liability as per the statutory notice and therefore,
this Hon'ble Court be pleased to dismiss the petition
with liberty to the Respondent Bank to take further
recourse to take physical possession and sale the
secured asset in pursuance of the rights enshrined
under the SARFAESI Act and recover its dues in
accordance with law. It is prayed that the there is
no infirmity or irregularity in the order passed by
the Hon'ble DRT, Ahmedabad and present Petition be
dismissed in limine with exemplary cost against the
Petitioners."
6.3. Referring to the above contentions, it was
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
submitted that though there is an alternative
remedy of preferring Appeal before the Debt
Recovery Appellate Tribunal, this Court should
not entertain the petition as the petitioner has
not filed any Appeal before the Appellate
Tribunal and no writ can be issued under Article
226 of the Constitution of India when the DRT has
rejected the application for interim-relief and
the petitioner can raise all contentions on
merits before the DRT at the time of final
hearing of the Securitisation Application and the
respondent-Bank should not be restrained from
taking the physical possession of the mortgaged
property so as to recover the outstanding dues of
more than Rs.1 Crore to be paid by the
petitioners to the respondent-Bank.
7. Having heard the learned advocates for the
respective parties and having gone through the
materials on record, it appears that the DRT
without considering the decision of the Division
Bench of this Court in case of the Punjab
National Bank Versus M/s. Mithilanchal Industries
Pvt. Ltd, has passed the impugned orders holding
that there is no prima-facie case in favour of
the petitioner and the balance of convenience is
in favour of the respondent-Bank.
8. On perusal of the documents produced on
record, it emerges that in the year 2017, the
respondent-Bank converted the Overdraft facility
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
into the Term Loan Facility from Rs.100 Lakhs to
Rs.88 Lakhs and on default of payment on part of
the petitioners, the Term Loan Account was
declared as NPA and thereafter, the notice under
Section 13(2) of the SARFAESI Act was issued on
14th February, 2019. On bare perusal of the said
notice, relevant portion of which is reproduced
hereinabove, the notice states that the recovery
is towards the Overdraft facility and not towards
the Term Loan. Moreover, there is no bifurcation
of the principal amount and the interest amount
to be recovered from the petitioners-borrowers.
9. This basic lecuna in the demand notice is not
taken into consideration by the DRT and the same
is brushed aside as trivial and technical error
relying upon the decision of the Apex Court in
case of L & T Housing Finance Limited (Supra).
It is therefore, germane to refer to the relevant
paragraphs of the said decision of the Apex Court
which is relied upon by the DRT :
"19. In the facts and circumstances, when the action
has been taken by the competent authority as per the
procedure prescribed by law and the person affected
has a knowledge leaving no ambiguity or confusion in
Initiating proceedings under the provisions of the
SARFAESI Act by the secured creditor, in our
considered view, such action taken thereof cannot be
held to be bad in faw merely on raising a trivial
objection which has no legs to stand unless the
person is able to show any substantial prejudice
being caused on account of the procedural lapse as
prescribed under the Act or the rules framed
thereunder still with a caveat that it always depends
upon the facts of each case to decipher the nature of
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
the procedural lapse being complained of and the
resultant prejudice, if any, being caused and there
cannot be a straitjacket formula which can be
uniformly followed in all the transactions."
20. Adverting to facts of the instant case, we are of
the view that the objection raised by the respondents
was trivial and technical in nature and the appellant
(secured creditor) has complied with the procedure
prescribed under the SARFALSI Act, at the same time,
the objection raised by the respondents in the first
instance, at the stage of filling of a Securitisation
Application before DRT under the SARFAESI Act is a
feeble attempt which has persuaded the Tribunal and
the High Court to negate the proceedings initiated by
the appellant under the SARFAESI Act, is
unsustainable more so, when the respondents are
unable to justify the error in the procedure being
followed by the appellant (secured creditor) to be
complied with in initiating proceedings under the
SARFAESI Act.
21. The submission made by the respondent's counsel
that the notice under Section 13(2) of the Act was
served by the authorised Signatory of "L&T Finance
Ltd." and that was not the secured creditor in the
facts of the case, in our considered view, is wholly
without substance for the reason that "L&T Finance
Ltd." and "L&T Housing Finance Ltd." are the
companies who in their correspondence with all its
customers use a common letterhead having their
selfsame authorised signatory, as being manifest from
the record and it is the seal being put at one stage
by the authorised signatory due to some human error
of "LAT Finance Ltd." In place of "L&T Housing
Finance Ltd." More so, when it is not the case of the
respondents that there was any lota of confusion in
their knowledge regarding the action being Initiated
in the instant case other than the secured creditor
under the SARFAESI Act for nonfulfillment of the
terms and conditions of the Facility Agreement dated
11th August, 2015 or any substantial prejudice being
caused apart from the technical objection being
raised while the demand notice under Section 13(2)
was served under the SARFAESI Act or in the
proceedings in furtherance thereof no interference by
the High Court in its limited scope of judicial
review was called for. Consequently, In our view, the
judgment of the High Court is unsustainable and
deserves to be set aside."
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
10. In the facts before the Apex Court, the
objections raised by the borrowers were trivial
and technical in nature and the secured creditor
complied with the procedures prescribed under the
SARFAESI Act and the objections raised by the
borrower before the DRT was also considered as a
feeble attempt which has persuaded the DRT to
negate the proceedings initiated under the
SARFAESI Act. In such circumstances, the Apex
Court held that the demand notice issued under
Section 13(2) cannot be considered as illegal
causing substantial prejudice to the borrowers.
However, in the facts of the case as held by the
Division Bench in case of Punjab National Bank
Versus M/s. Mithilanchal Industries Pvt. Ltd, the
demand notice issued by the respondent-Bank under
Section 13(2) itself is not meeting with the
provisions of Section 3 of the Section 13 of the
SARFAESI Act. The relevant observations and
findings of the Division Bench in the said case
are as under :
"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 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
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
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 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 Sub-
Section (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 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
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
merits is accordingly rejected.
SECOND POINT : SCOPE OF SECTION 17 OF THE SARFAESI
ACT:-
33. At first we proceed to deal with the scheme as
envisaged in Section 17 of the SARFAESI Act. Under
subsection (1) of Section 17 any person aggrieved by
any of the measures referred to in sub-section (4) of
Section 13 taken by the secured creditor can prefer
an appeal (application) to the Debts Recovery
Tribunal within 45 days from the date on which such
measures had been taken. Under subsection (2) of
Section 17, the Tribunal is bound to consider whether
any of the measures referred to under sub-section (4)
of Section 13 taken by the secured creditors are in
accordance with the provisions of the Act. Under
subsection (3) of Section 17, after examining the
facts and circumstances of the case, and evidence
produced by the parties, if the Tribunal comes to the
conclusion that any of the measures referred to in
sub-section (4) of Section 13 taken by the secured
creditor are not in accordance with the provisions of
the Act and the rules, and require restoration of the
management of the business or restoration of
possession of the secured assets to the borrower, it
may declare such action as invalid and restore
possession of the secured assets to the borrower or
restore the management of the business to the
borrower, as the case may be. As a necessary
corollary, sub-section (4) of Section 17 provides
that if the Tribunal declares that the recourse taken
by the secured creditor under sub-section (4) of
Section 13 was in accordance with the provisions of
the Act and the rules made thereunder, then,
notwithstanding anything contained in the Act or any
other law for the time being in force, the secured
creditor shall be entitled to take recourse to one or
more of the measures specified under sub-section (4)
of Section 13 to recover his secured debt.
34. On a plain reading of Section 17, it is seen that
the Tribunal has wide powers to restore possession in
favour of the borrower, if such action taken under
sub-section (4) of Section 13 is declared invalid.
Even where the property is sold or dealt with,
pending hearing of the application under Section 17,
the Tribunal is not rendered powerless to restore
possession in favour of the borrower, if such action
taken under sub-section (4) of Section 13 is declared
invalid. In such an eventuality, sub-section (3) of
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
Section 17 gives ample powers to the Tribunal to
direct restoration of the possession or restoration
of management, as the case may be or to pass such
other order, as it may consider proper and necessary
in relation to any of the recourse taken by the
secured creditor under sub-section (4) of Section 13.
35. We may refer to and rely upon the judgment of the
Supreme court in Transcore vs. Union of India and
another reported in (2006) 5 CTC 753. In Transcore,
the main question, which fell for consideration of
the Supreme Court, was whether the withdrawal of an
O.A in terms of the first proviso to Section 19(1) of
the Recovery of Debts due to Banks and Financial
Institutions Act, is a condition precedent to taking
recourse to the Securitisation Act. In the context of
this question, the Court examined the scheme of the
Securitisation Act, and it was observed:
"13. ... The NPA Act is inspired by the provisions
of the State Financial Corporations Act,1951 (SFC
Act), in particular Sections 29 and 31 thereof. The
NPA Act proceeds on the basis that the liability of
the borrower to repay has crystallized; that the
debt has become due and that on account of delay
the account of the borrower has become sub-standard
and nonperforming. The object of the DRT Act as
well as the NPA Act is recovery of debt by non-
adjudicatory process...
22. ... On reading Section 13(2), which is the
heart of the controversy in the present case,one
finds that if a borrower, who is under a liability
to a secured creditor, makes any default in
repayment of secured debt and his account in
respect of such debt is classified as nonperforming
asset then the secured creditor may require the
borrower by notice in writing to discharge his
liabilities within sixty days from the date of the
notice failing which the secured creditor shall be
entitled to exercise all or any of the rights given
in Section 13(4). Reading Section 13(2) it is clear
that the said subsection proceeds on the basis that
the borrower is already under a liability and
further that, his account in the books of the bank
or FI is classified as substandard, doubtful or
loss. The NPA Act comes into force only when both
these conditions are satisfied. Section 13(2)
proceeds on the basis that the debt has become due.
It proceeds on the basis that the account of the
borrower in the books of bank/FI, which is an asset
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
of the bank/FI, has become non-performing.
Therefore, there is no scope of any dispute
regarding the liability. There is a difference
between accrual of liability, determination of
liability and liquidation of liability...
23. ...The point to be noted is that the scheme of
the NPA Act does not deal with the disputes between
the secured creditors and the borrower. On the
contrary, the NPA Act deals with the rights of the
secured creditors inter se. The reason is that the
NPA Act proceeds on the basis that the liability of
the borrower has crystallized and that his account
is classified as non-performing asset in the hands
of the bank/FI...
24. ...However, under Section 17(2), the DRT is
required to consider whether any of the measures
referred to in Section 13(4) taken by the secured
creditor for enforcement of security are in
accordance with the provisions of the NPA Act and
the Rules made thereunder. If the DRT, after
examining the facts and circumstances of the case
and the evidence produced by the parties, comes to
the conclusion that any of the measures taken under
Section 13(4) are not in accordance with the NPA
Act, it shall direct the secured creditor to
restore the possession/management to the borrower
(vide Section 17(3) of NPA Act). On the other hand,
after the DRT declares that the recourse taken by
the secured creditor under Section 13(4) is in
accordance with the provisions of the NPA Act then,
notwithstanding anything contained in any other law
for the time being in force, the secured creditor
shall be entitled to take recourse to any one or
more of the
measures specified under Section 13(4) to recover
his secured debt."
36. In Misons Leather Ltd. vs. Canara Bank, Chennai,
(2007) 3 LW 500 : 2007(4) MLJ 245, the constitutional
validity of the amended Section 17 was challenged
before a Division Bench of the Madras High Court on
the ground that the remedy of filing application
under Section 17 of the Act which is declared to be
in the nature of the suit by the Supreme Court is
totally taken away by the amendment and in any event,
the remedy is only an empty formality and does not
protect the rights of the borrowers, mortgagors and
guarantors. Repelling this contention, the Division
Bench observed:
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
"10. We are afraid that the contention is totally
misconceived. The provisions of Section17(1) of the
Act provides remedy for the
borrower/guarantor/mortgagor to challenge the
action of the Bank under Section 13(4) of the Act
before the Debt Recovery Tribunal. The Debt
Recovery Tribunal is required to decide whether the
action of the Bank/Financial institutions, under
Section 13(4) is in accordance with the provisions
of the Act and the rules framed thereunder. It is
open to the borrower/ guarantor /mortgagor to
demonstrate before the Debt Recovery Tribunal that
resort to Section 13 of the Act is not permissible
bylaw. In a given case, the claim of the
Bank/Financial Institutions may be barred by
limitation or there may be cases, where the
adjustment of the amount paid is not reflected in
the notice or the calculation of interest may not
be in accordance with the contract between the
parties. Needless to say that all such grounds,
which render the action of the Bank/Financial
Institutions illegal can be raised in
theproceedings under Section 17 of the Act before
the Debt Recovery Tribunal.
11. Learned Additional Solicitor General and the
learned counsel appearing for banks and financial
institutions fairly stated that all the objections
which can be legally raised in the reply to the
notice under Section 13(2) of the Act can also be
raised in the proceedings under Section 17(1) of
the Act. It would be for the Debt Recovery Tribunal
to decide in each case whether the action of the
bank is in accordance with the provisions of the
Act and is legally sustainable."
37. As can be seen from the Statement of Objects and
Reasons of the Securitisation Act, the main purpose
of the Securitisation Act, and in particular Section
13 thereof, is to enable and empower the secured
creditors to take possession of their securities and
to deal with them without the intervention of the
Court. Therefore, in an application under Section 17,
the Tribunal is concerned only with the validity of
the acts of the secured creditor in taking possession
of the securities and dealing with the same under
Section 13. In our opinion, all such grounds, which
would render the action of the bank/financial
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
institution illegal, can be raised before the
Tribunal in the proceedings under Section 17. It is
for the Tribunal to decide in each case whether the
action of the bank was in accordance with the
provisions of the Act and legally sustainable.
However, we hasten to add that while considering the
question of validity of the action of the bank, it is
not necessary for the Tribunal to adjudicate the
exact amount due to the secured creditors. In other
words, the purpose of an application under Section 17
is not the determination of the quantum of claim per
se as the Tribunal is concerned with the issue of the
validity of the measures taken by the banks/financial
institutions under Section 13(4).
38. The proviso to section 13(3A) of the SARFAESI Act
specifically restricts the borrower from approaching
the Debts Recovery Tribunal under Section 17 or the
Court of District Judge under Section 17A of the
SARFAESI Act at the stage of rejection of his
objection / representation under Section 13(3A) of
the SARFAESI Act. It clearly mentions that at the
stage of communication, the borrower would not be
conferred with any right to move either before the
Debts Recovery Tribunal or the Court of District
Judge. The use of the word at the stage of
communication clearly indicates that at subsequent
stage such challenge could be made to the
communication by the Secured Creditor under Section
13(3A) of the SARFAESI Act. After the above stage,
comes the stage of Section 13(4) where the secured
creditor may take recourse to one or more of the
measures mentioned in sub-clauses (a), (b), (c) and
(d) in case the borrower fails to discharge his
liability in full within the period specified in sub-
section (2) of Section 13 of the SARFAESI Act.
39. Upon recourse being taken under Section 13(4),
Section 17 comes into play and gives right to any
person, including the borrower aggrieved by any of
the measures referred to in sub-section (4) of
section 13 taken by the secured creditor or his
authorized officer. We are not concerned with the
procedural part to be adopted under
Section 17 of the SARFAESI Act, but the question is
whether while deciding the application under Section
17 of the SARFAESI Act, the Debts Recovery Tribunal
could test the validity of the notice under Section
13(2) and also the procedure prescribed under sub-
section (3A) of Section 13 of the SARFAESI Act as
canvassed by the learned counsel for the appellant
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
Secured Creditor.
40. A reading of Section 13(4) of the SARFAESI Act
gives power to the Secured Creditor to take recourse
to one or more of the measures provided in Clauses
(a) to (d) to recover his secured debt only where the
borrower fails to discharge his liability in full
within the period specified in Sub-Section (2)
thereof. Thus, there has to be a failure on the part
of the borrower to comply with the terms mentioned in
Sub-Section (2). Failure to comply with Sub-Section
(2) would entail a prior duty/obligation on the part
of the Secured Creditor to strictly comply with the
terms mentioned therein, that is a valid notice. The
notice would be valid only upon complying with the
conditions of SubSection (3). Once the action taken
at the stage of Section 13(4) of the SARFAESI Act is
questioned under Section 17 thereof, then the first
and foremost thing to be tested would be the valid
action by the Secured Creditor under SubSection (2)
of giving a valid notice and therefore, there is
failure on the part of the borrower to discharge his
liability. Now in the present case, if the liability
itself is not validly communicated by the Secured
Creditor, there could not be a failure on the part of
the borrower. The Tribunal, therefore, would be well
within its powers to test the validity of the notice
under Section 13(2) of the SARFAESI Act.
FURTHER ANALYSIS ON BOTH THE POINTS:
41. The action / recourse taken under Section 13(4)
by the Secured Creditor would be dependent upon its
validity and legally justified action having been
taken in the previous sub-sections i.e. sub-sections
(1), (2), (3) and (3A). If the procedure prescribed
or the requirement provided under the aforesaid sub-
sections are not fulfilled by the secured creditor
the action/recourse under sub-section (4) of Section
13 would fall. The recourse/action under Section
13(4) of the SARFAESI Act is based upon due
compliance in accordance with law of the previous
sub-sections of Section 13 of the SARFAESI Act.
Whenever it is found that the Secured Creditor has
not discharged its obligations strictly in accordance
to the provisions of sub-sections, in particular the
fulfillment of conditions under sub-section (3) and
sub-section (3A), the action / recourse under
subsection (4) would fail and fall to the ground. The
action / recourse under sub-section (4) stand on the
pillars of the valid action under sub-sections (2),
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
(3) and (3A). If any of those pillars is found to be
shaky/defective, the action/recourse under sub-
section (4) must necessarily fall.
42. In order to test action/recourse under subsection
(4) of Section 13 of the SARFAESI Act in an
application under Section 17, the Debts Recovery
Tribunal has to examine that whether the necessary
foundation or the pre-requisites of taking action
under Section 13(4) has been fulfilled or not. Where
there is a failure or noncompliance, the Tribunal has
no other option but to hold that the action/recourse
under sub-section (4) is invalid and illegal.
43. The action/recourse under sub-section (4) of
Section 13 is consequential to the borrower failing
to discharge his liability in full within the period
specified in sub-section (2), which speaks of secured
creditor requiring the borrower by notice in writing
to discharge in full his liabilities within 60 days
from the date of notice failing which the secured
creditor would be entitled to exercise all or any of
the rights under sub-section (4). The requirements of
the notice under sub-section (2) is provided under
sub-section (3) which clearly mandates that 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. If these details are not provided which are
mandatory in nature or which casts a mandate upon the
secured creditor to provide such details, the notice
would be bad in law, which we have already held
above.
44. In the present case, the borrower took an
objection of non-compliance of sub-section (3), in
his objection / representation given sub-section
(3A), but despite the same the Bank - Secured
Creditor in the present case rejected the objection
instead of ensuring the compliance of sub-section
(3). A perusal of the notice under sub-section (2)
which is already reproduced above does not spell out
the details of the amount payable by the borrower,
but only mentions a lump sum aggregate amount. The
dispute with regard to rate of interest being charged
by the bank was pre-existing the stage of section 13,
and therefore, when the borrower called upon the
Secured Creditor to provide the details, as a fair
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
and reasonable Secured Creditor - the appellant Bank
ought to have come out with such details,
justification of such details would be a different
aspect, but the Bank could not withhold the details.
Even the details of the secured assets had not been
correctly provided as recorded by the Tribunal, which
finding has not been altered or upset at any
subsequent stage. If the Bank withholds the details,
as in the present case, then such action cannot be
sustained."
11. Therefore, in view of the above the
contentions raised on behalf of the respondent-
Bank that no objection is raised by the
petitioners in spite of the fact that the notice
was not served upon the petitioners on the last
known address as per the provisions of the
Security Interest Rules, the respondent-Bank
cannot be absolved from meeting with the criteria
prescribed under the Sub-section 3 of the Section
13 to give bifurcation of the principal amount
and interest amount with correct statement in the
demand notice with regard to the claim amount to
be paid by the petitioners-borrowers.
12. In view of the above facts emerging from the
records, it cannot be said that there was trivial
and technical error in the demand notice issued
under Section 13(2) of the SARFAESI Act by the
respondent-Bank. Therefore, there is a prima-
facie case made out by the petitioners to grant
interim relief as prayed for before the DRT by
restraining the respondent-Bank to take any
possession of the mortgaged property during the
pendency of the Securitisation Application. The
C/SCA/16428/2021 JUDGMENT DATED: 20/01/2022
balance of convenience is also in favour of the
petitioners in view of the fact that the demand
notice issued by the respondent-Bank is defective
and therefore, if ultimately the Securitisation
Application is to be allowed, then petitioners
would be put to unnecessary hardships, as though
DRT is having power to restore the possession
under Section 17(3)(b) of the SARFAESI Act, in
the facts of the case, there is no need to reach
to the said eventuality, as in opinion of this
Court the notice issued by the respondent-Bank
under Section 13(2) is defective and no
securitisation action can be initiated on basis
of such notice under Sub-section 4 of Section 13
of the SARFAESI Act. In such circumstances, the
petitioners would suffer irreparable loss if the
physical possession of the mortgaged property is
allowed to be taken by the respondent-Bank during
the pendency of Securitisation Application.
13. In the result, the petition succeeds and is
accordingly allowed. The respondent-Bank is
restrained from taking physical possession of the
mortgaged property of the petitioners during the
pendency of the Securitisation Application No.94
of 2020. Rule is made absolute to the aforesaid
extent. No order as to cost.
(BHARGAV D. KARIA, J)
PALAK
