Gujarat High Court
Proprietor Of Swastik Oil ... vs Bank Of Baroda, Dahod on 16 October, 2023
Bench: Ilesh J. Vora
NEUTRAL CITATION
C/SA/445/2023 ORDER DATED: 16/10/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SECOND APPEAL NO. 445 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/SECOND APPEAL NO. 445 of 2023
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PROPRIETOR OF SWASTIK OIL INDUSTRIES GADIYA PANKAJKUMAR
PRAKASHCHANDRA
Versus
BANK OF BARODA, DAHOD
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Appearance:
MR KV SHELAT(834) for the Appellant(s) No. 1
BHASKAR SHARMA(9209) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE ILESH J. VORA
Date : 16/10/2023
ORAL ORDER
1. This Second Appeal under Section 100 of the Civil
Procedure Code, 1908 is at the instance of original
applicant and is directed against the judgment and order
dated 08.08.2023, passed by the Principal District Judge,
Dahod in Misc. Civil Appeal No.28 of 2017, arising from
the order dated 30.06.2017 passed below Exh.191, in
Insolvency Petition No.1 of 2012 by which the prayer made
by the respondent Bank of Baroda for lifting and/or
vacating the receivership with respect of movable and
immovable properties specified in first and second
schedule of insolvency petition has been allowed and
confirmed by the First Appellate Court.
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2. The necessary facts giving rise to file present appeal are
that;
2.1 The appellant Gadiya Pankajkumar Prakashchandra
is doing in business at Dahod in the name and style of
Swastik Oil Industries and he is the proprietor of the said
business entity.
2.2 In the June-2011, the appellant availed a financial
assistance in the form of cash credit, approximately Rs.3
crores from the secured creditor, Bank of Baroda, Dahod
Branch. In order to secure the said amount, the appellant
created securities by mortgaging the movable and
immovable properties which is subject matter of this appeal,
in favour of the bank. The appellant could not repay the
said amount, as a result, his account was classified as non-
performing assets, on 31.01.2012, in the books of accounts
of the secured creditors i.e. Bank of Baroda. The notice
dated 01.02.2012, under Section 13(2) of the SARFAESI
Act, 2002, was served upon the appellant. The respondent
Bank of Baroda, filed a recovery application no.26 of 2012,
before the DRT, Ahmedabad, wherein various interim reliefs
as sought by the bank granted, including the injunction,
restraining the appellant not to transfer or alienate the
property.
2.3 On 06.01.2012, by invoking provisions of the
Provincial Insolvency Act, 1920, insolvency petition no.1 of
2012, filed against the some of the creditors, including the
Bank of Baroda respondent herein. In the petition, prayer
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was made for appointment of interim receiver. The Civil
Court, Dahod, after following the procedure appointed
interim receiver, directed the receiver to take possession of
the properties, specified in first and second schedule of the
application. The properties specified in schedule-1 and 2
already mortgaged with the respondent Bank of Baroda.
Despite of this fact, the possession of the said properties
taken over by the receiver.
2.4 The notice of the insolvency application served on the
bank. During the proceedings vide Exh.191, the respondent
bank prayed that the receiver may be directed to handover
the properties specified in schedule-1 and 2 to the bank and
the order of receiver may be vacated or lifted so far as
properties mortgaged with the bank are concerned. In the
application, it was averred that the security interest created
in favour of the bank and the appellant borrower is under
liability to pay the amount and had made default in
repayment of secured debt and his account is classified as
NPA and for the enforcement of the security interest, the
notice under Section 13(2) of the SARFAESI Act, 2002 was
served and recovery proceedings is also pending before the
DRT, Ahmedabad and therefore, considering Sections 34
and 35 of the Act, the Civil Court having no jurisdiction to
deal with the issue and the bank secured creditor is entitled
to realize or otherwise deal with their security and therefore,
the order handing over the properties upon which security
interest having been created may be handed over to the
bank by vacating and/or lifting the receivership.
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3. In the aforesaid background facts, the learned Principal
Civil Court, after hearing the parties and considering the
statutory provisions of Sections 8 and 28(6) of the
Insolvency Act, 1920 and Sections 34 and 35 of the
SARFAESI Act came to a conclusion that the Bank of
Baroda is a secured creditor and the Court having no
jurisdiction to deal with the secured assets and the remedy
is lie with the DRT. The learned Civil Court further
recorded that the appellant herein cannot file insolvency
petition against the secured creditor i.e. Bank of Baroda.
4. Being aggrieved by and dissatisfied with the order of the
Civil Court, the appeal was preferred before the District
Court, Dahod. The learned District Court, Dahod, after
considering the peculiar facts and circumstances of
present case and statutory provisions, by confirming the
order of the Civil Court, dismissed the appeal. The learned
District Court, while dismissing the appeal, observed that
the constructive possession of the properties specified in
schedule-1 and 2 is with the bank and therefore, the
properties cannot be retained into custody by the receiver.
The learned District Court, referring to Section 28(6) of the
Insolvency Act, 1920, came to a conclusion that when the
Civil Court finds it necessary to remove the property, then
the appellant debtor cannot raise the objections. The
learned District Court, after perusal of the reasons
recorded by the Civil Court, finds that the order is a well
reasoned order and as such, no error either on facts or law
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committed by the Civil Court.
5. The Second Appeal is filed on the following proposed
substantial questions of law:
"7.1 Whether the Courts below have erred at law in deleting the
Respondent by purporting to exercise and giving exemption
to Respondent as provided under section 8 of the Provincial
Insolvency Act by deleting the Respondent no.1 bank from
array of creditors - defendants in the Insolvency Petition
no. 1 of 2012 when the Insolvency proceedings are
judgment in rem?
7.2 Whether the Ld. Courts below had erred at law in not
hearing other creditors who had been arrayed in the
Insolvency Petition no.1 of 2012 that too when the Ld.
Court has admitted the Insolvency Petition and the interim
Receiver has been appointed by the Insolvency Court after
following the procedure under Section 19 and 20 of the
Provincial Insolvency Act and whether such passing of
order dated 30.06.2017 by the Insolvency Court is against
the principles of natural justice and without hearing other
creditors though the order passed are infringing and
affecting the rights of other creditors.
7.3 Whether the Ld. Courts below have committed material
error of law in passing the impugned order ignoring the
admitted fact situation that the Respondent bank has not
served the notice under section 13(2) to the appellant
debtor nor the proceedings under section 13(2) of the
SARFEASI Act are completed nor can be have to be started
in absence of any service of mandatory notice as
contemplated under section 13(2 of SARFEASI.
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7.4 Whether in the facts situation the Ld. Courts below have
erred in allowing the application Exhibit 191 without
consideration of section 47(2) and section 68 of The
Provincial Insolvency Act, 1920.
7.5 Whether the Ld. Courts below have committed substantial
error of law in not considering the effect and implications of
withdrawal of application exhibit 142 and 143 and which
application withdrawn unconditionally and whether by
filing the said application, it can be said to have accepted
the jurisdiction of the Ld. Civil Court considering the
Insolvency Proceedings under Provincial Insolvency Act and
if yes than whether subsequent application 191 was not
maintainable and was barred by principles of estoppel.
7.6 Whether in the facts of the the present case when the
official interim receiver as per the direction if the Ld.
Insolvency Court already took the possession of the
property in question pursuant in Insolvency Application
no.1 of 2012, whether it was incumbent and salutary for
the Respondent bank creditor to apply under section 68 of
the Provincial Insolvency Act by moving the official
receiver."
6. This Court has heard learned counsel Mr.K.V. Shelat and
Mr.Bhaskar Sharma, learned counsel for the respective
parties.
7. Mr.K.V. Shelat, learned counsel for the appellant has
submitted that the First Appellate Court as well as the
Civil Court committed a serious error of law as the Court-
below failed to appreciate that the Bank of Baroda being a
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creditor, is necessary and proper party for adjudication of
the insolvency petition, and therefore, by misinterpretation
of Section 8 of the Act, the name of the Bank as a party
respondent has been wrongly deleted. That the respondent
bank by accepting the jurisdiction, asked the Court to
direct the receiver to dispose of the property and later on,
the said application withdrawn. That the Courts-below
could not have read Section 28(6) in isolation, but it
should be interpreted in harmony with Section 47 and
other provisions of the Act, 1920 and therefore, the
provisions of the Act having not been interpreted in its true
perspective and on that ground, the appeal is required to
be admitted. That as a matter of fact, the bank had not
taken action under Section 13(4) of the SARFAESI Act and
thus, unless the proceedings under the said provisions
initiated, then overriding effect under Section 35 of the
SARFAESI Act would be applicable.
8. In view of aforesaid contentions, learned counsel Mr.Shelat
prays that considering the issue of law, the second appeal
on the formulated substantial questions of law may kindly
be admitted.
9. Countering to the submissions, Mr.Bhaskar Sharma,
learned counsel contended that the appellant has
suppressed the material facts in the insolvency petition
and on this count, the appeal may not be admitted. That
the appellant being a borrower failed to repayment the
amount of cash credit worth Rs.3 crores and more and the
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security interest created in favour of the bank by way of
mortgage of the properties specified in the insolvency
application and therefore, the bank being a security
creditor having all the rights to enforce its security interest
and for enforcement of the security interest, the mandatory
notice under Section 13(2) served upon the appellant on
01.02.2012, and thereafter, the recovery proceedings
initiated against the appellant which is pending before the
DRT, Ahmedabad, wherein the injunction against the
transfer of the property is granted in favour of the bank.
10. In such circumstances, Mr.Sharma submitted that the
Courts below have rightly lifted the receivership and
directed the receiver to handover the secured assets of the
appellant borrower and considering the overriding effect as
provided under Section 35 of the SARFAESI Act and bar of
jurisdiction of the Civil Court as contemplated under
Section 34, the Courts below have rightly held that the
bank having statutory right to proceed under the
SARFAESI Act and the receiver cannot proceed further
under the provisions of Insolvency Act, 1920 so far the
secured assets are concerned.
11. Having heard learned counsel for the respective parties,
the only question that falls for my consideration is whether
the second appeal involves any substantial questions of
law ?
12. My answer is in negative. The reasons are that before filing
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the insolvency petition, the appellant had availed the cash
credit facilities worth Rs.3 crores and more and for that to
secure the amount, a security is created in favour of the
bank by mortgaging the properties in question. The title
deeds submitted to the bank. It is an admitted fact that
13(2) Notice under the SARFAESI Act was being served on
the appellant and therefore, the stand taken in the present
appeal about non-service of the notice is misconceived and
not tenable. The recovery proceedings is pending before the
DRT, Ahmedabad, wherein various interim reliefs, as
sought by the bank, were granted in their favour. In such
circumstances, the respondent bank initiated measures
under the provisions of SARFAESI Act. In such
circumstances, the Courts below have rightly held that the
provisions of Section 34 of the Act would prohibit the
Court from passing any order which would amount to
restrain the bank from taking any action for realization of
its dues, in pursuance of the powers confirmed to the bank
under the SARFAESI Act. It needs to be noted that the
properties handed over to the receiver are mortgaged
properties and in that view of the matter, the receiver as
well as the Court cannot pass any order of adjudication
under Section 28 of the Act, 1920, and therefore, Courts
below have rightly relied on Section 28(6) of the Act, 1920.
The Courts below have referred and relied on Section 8 of
the Act, 1920 which provides that no insolvency petition
shall be presented against any company registered under
any enactment for the time in force.
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13. In view of the aforesaid discussions, this Court is of the
considered view that the second appeal does not have any
substantial questions of law. In the result, the appeal fails
and is hereby dismissed.
14. In view of the disposal of the main Second Appeal,
connected Civil Application does not survive and
accordingly, the same is disposed of.
(ILESH J. VORA,J)
Rakesh
