Jammu & Kashmir High Court - Srinagar Bench
Jabeena Afroz & Ors vs Authorized Officer on 9 May, 2022
Serial No. 15
Regular Cause List
HIGH COURT OF JAMMU & KASHMIR AND LADAKH
AT SRINAGAR
CM(M) No. 30/2020
CM No. 1262/2020
Jabeena Afroz & Ors.
... Petitioner(s)
Through: -
Mr Altaf Haqani, Senior Advocate with
Mr Asif Wani, Advocate.
V/s
Authorized Officer, Impaired Assets, Portfolio Management Department & Ors.
... Respondent(s)
Through: -
Mr Z. A. Shah, Senior Advocate with
Mr A. Hanan, Advocate.
CORAM:
Hon'ble Mr Justice Ali Mohammad Magrey, Judge.
Hon'ble Mr Justice Puneet Gupta, Judge.
(ORDER)
09.05.2022
Magrey-J (Oral):
01. By this Petition, the Petitioners have assailed the Order dated
16th of January, 2020 passed by the learned Chief Judicial Magistrate,
Srinagar, on an application filed under Section 14 of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (hereinafter referred to as 'the Act'), whereby and whereunder
the learned Chief Judicial Magistrate has appointed the Station House
Officer of the concerned Police Station to take possession of the
immoveable property/ secured asset, i.e., residential house with land
underneath and appurtenant thereto measuring 01 Kanal and 14 ½ Marlas
falling under Khasra No. 224 Min and 712 Min, Khata No. 22 Min and
CM(M) No. 30/2020; CM No. 1262/2020
Khewat No. 12 Min situate at Azad Colony, 90 ft Road, Soura, Srinagar in
Estate Awantabhawan, Tehsil and District Srinagar in the name of one Late
Afroz Hussain Wani/ husband of the Petitioner No.1 herein and submit the
report on the next date with prior information to the Authorized Officer of
the Bank to remain present on spot on the scheduled date.
02. The Respondent-Bank, on the request of the predecessor-in-
interest of the Petitioners, is stated to have sanctioned and disbursed the
following credit facilities in his favour:
S. No. Nature of Facility Amount
01 Cash Credit 3,37,00,000/-
02 WCTL-2016 46,21,000/-
03 CTL-2016 93,000/-
Total 3,84,14,000/-
03. In lieu of the aforesaid financial assistance, the predecessor-in-
interest of the Petitioners is claimed to have executed various security
documents on 11th of August, 2017 creating security interest, inter alia, in
respect of the following secured assets in favour of the Bank: (i)
Hypothecation of Stocks and book debts; and (ii) Equitable mortgage of
residential house with land underneath and appurtenant thereto measuring
01 Kanal and 14 ½ Marlas falling under Khasra Nos. 224 Min & 712 Min;
Khata No. 22 Min; and Khewat No. 12 Min situate at Azad Colony, 90 Feet
Road, Soura, Srinagar in estate Owanta Bhawan, Tehsil and District
Srinagar in the name of the predecessor-in-interest of the Petitioners.
CM(M) No. 30/2020; CM No. 1262/2020
04. On default in repayment of the aforementioned secured debt in
violation of the terms and conditions agreed between the parties, the
Respondent-Bank declared the account as 'Non-Performing Asset' with
effect from 6th of September, 2018 as per the guidelines/ directions of the
Reserve Bank of India. The amount due to the Bank, as on 30th of June,
2019, was detailed out as under:
S. No. Nature of Facility Amount
01 Cash Credit 3,79,29,115/-
02 WCTL-2016 40,84,648/-
03 CTL-2016 65,891/-
Total 4,20,79,654/-
05. The Petitioners were further asked to pay interest @ 12.85%
with monthly rests on the aforesaid total amount of Rs. 4,20,79,654/- w.e.f.
1st of July, 2019 till the date of repayment of the dues in full.
06. Thereafter, the Respondent-Bank, while claiming to be a
'Secured Creditor', as defined under the provisions of the Act in respect of
the amount outstanding against the predecessor-in-interest of the
Petitioners, in terms of Section 13(2) of the Act, issued notice bearing No.
JKB/ZOKC-1/IAPM/SRFS/2019-5236 dated 6th of July, 2019 to the
Petitioners to pay to the Bank all the amount outstanding against them in
the books of accounts of the Bank within its branch at SSI, Lal Chowk,
Srinagar, together with interest accrued thereon w.e.f. 1st of July, 2019
along with other charges and costs incurred by the Bank from time to time
CM(M) No. 30/2020; CM No. 1262/2020
and thereby discharge in full all liabilities to the Bank within a period of 60
days from the date of the notice, failing which the following measures
under the provisions of the Act were stipulated to be taken for recovery of
the secured debt:
i. Take possession of the secured assets including the right to transfer by
way of lease, assignment or sale of the secured assets;
ii. Take over the management of secured assets including the right to
transfer by way of lease, assignment or sale and realise the secured
assets;
iii. Appoint any person to manage the secured assets; and
iv. Require at any time by notice in writing any person/s who may has/
have acquired any of the secured assets from you to pay Bank.
07. In the aforesaid notice, the Petitioners were asked to discharge
the liability in full within 60 days from the date of notice, failure whereof
would allow the Respondent-Bank to proceed further in the matter in
accordance with the provisions of the Act.
08. The Petitioners have admitted the receipt of the aforesaid
notice and claim to have responded to the said notice in the shape of a
representation. After submission of the aforesaid representation, the
Petitioners plead that the decision taken on the said representation has not
been communicated to the Petitioners, therefore, the impugned Order is bad
in law. It is contended that the Order impugned, purported to have been
issued in terms of Section 14 of the Act, is in contravention of the
provisions of the Act inasmuch as it is obligatory on the part of the
Respondent-Bank to have filed an Affidavit to declare that the response to
CM(M) No. 30/2020; CM No. 1262/2020
the Objection or representation has been communicated to the borrower
which is missing in the present case.
09. Having heard the learned Counsel for the parties and after
going through the pleadings on record, the short issue that arises for our
consideration in this case is whether or not the decision made by the
Respondent-Bank on the representation claimed to have been submitted by
the Petitioners in response to the notice issued under Section 13(2) of the
Act to them was ever communicated to the Petitioners as mandated under
Section 13(3-A) of the Act.
10. It is the positive case of the Petitioners that, although they
responded to the notice issued to them by the Respondent-Bank under
Section 13(2), but same has not been considered at all before invoking the
jurisdiction of the learned Chief Judicial Magistrate, Srinagar under Section
14 of the Act. It is further contended that the impugned Order records that
the Petitioners did not submit any response to the notice issued to them
under Section 13(2), when, as a matter fact, the Petitioners submitted their
response, in the shape of representation, with regard to the notice issued to
them under Section 13(2), but no decision with respect thereto was
communicated to them, thereby rendering the entire proceedings initiated
against them before the learned Chief Judicial Magistrate non-est in the
eyes of law. The Petitioners have placed on record the photocopy of the
said response/ representation filed by them in relation to the notice issued
under Section 13(2) as Annexure-IV along with the Writ Petition also
showing the receipt of the Respondent-Bank dated 26th of August, 2019.
CM(M) No. 30/2020; CM No. 1262/2020
11. From the perusal of the impugned Order dated 16th of January,
2020, what emerges is that the learned Chief Judicial Magistrate, Srinagar,
while considering the application filed by the Respondent-Bank under
Section 14 of the Act, has observed that despite receipt of notice under
Section 13(2) of the Act, the Petitioners did not respond to the same and
failed to repay the outstanding loan amount along with the interest accrued
thereon. However, in the Counter Affidavit filed by the Respondent-Bank
before this Court, it is stated that the Petitioners, in fact, responded to the
notice issued to them under Section 13(2) of the Act which got mixed up
with other files in the Zonal Office, Kashmir and that, since it was not
readily available on the concerned file, the Authorized Officer proceeded on
the basis that the Petitioners have not responded to the notice issued to them
under Section 13(2) of the Act.
12. When asked, Mr Z. A. Shah, the learned Senior Counsel,
appearing on behalf of the Respondent-Bank, submitted that non-
consideration of the representation/ response filed by the Petitioners does
not invalidate the proceedings inasmuch as same does not prejudice the
Petitioners in any manner whatsoever. The learned Senior Counsel has
further submitted that in the said response nothing material or substantial
has been projected by the Petitioners and all that has been sought is
extension of time for making the repayment of debt.
13. In rebuttal, Mr Altaf Haqani, the learned Senior Counsel,
appearing for the Petitioners, submitted that the communication of the
decision on the representation of the Petitioners is fatal to the entire
CM(M) No. 30/2020; CM No. 1262/2020
proceedings and default thereof renders the action of the Respondents in
invoking the jurisdiction of the learned Chief Judicial Magistrate under
Section 14 of Act as unsustainable in the eyes of law and in violation of the
mandate of Section 13(3-A) of the Act.
14. The purpose and object of serving a notice upon the borrower
under sub-section (2) of Section 13 of the Act is that a reply may be
submitted by the borrower explaining the reasons as to why measures may
or may not be taken under sub-section (4) of Section 13 in case of non-
compliance of notice within 60 days. The creditor must apply its mind to
the Objections so raised in reply to such a notice and an internal mechanism
must be particularly evolved to consider such Objections raised in the reply
to the notice. There may be some meaningful consideration of the
Objections raised rather than to ritually reject them and proceed to take
drastic measures under sub-section (4) of Section 13 of the Act. Once such
a duty is envisaged on the part of the creditor, it would only be conducive to
the principles of fairness on the part of the banks and financial institutions
in dealing with their borrowers to apprise them of the reason for not
accepting the Objections or points raised in reply to the notice served upon
them before proceeding to take measures under sub-section (4) of Section
13. Such reasons, overruling the Objections of the borrower, must also be
communicated to the borrower by the secured creditor. Such a person, in
respect of whom steps under Section 13(4) of the Act are likely to be taken,
cannot be denied the right to know the reason of non- acceptance and of his
Objections.
CM(M) No. 30/2020; CM No. 1262/2020
15. It is necessary to communicate the reasons for not accepting
the Objections raised by the borrower in reply to notice under Section
13(2) of the Act, more particularly for the reason that normally in the event
of non-compliance with notice, the party giving notice approaches the Court
to seek redressal of his/ his grievance. Therefore, it goes with logic and
reason that he/ she may be checked to communicate the reason for not
accepting the Objections, if raised and before he/ she takes the measures
like taking over possession of the secured assets, etc. This will also be in
keeping with the concept of right to know and lender's liability of fairness
to keep the borrower informed particularly the developments immediately
before taking measures under sub-section (4) of Section 13 of the Act. It
will also cater the cause of transparency and not secrecy and shall be
conducive in building an atmosphere of confidence and healthy commercial
practice. Such a duty, in the circumstances of the case and the provisions, is
inherent under Section 13(2) of the Act.
16. In order to appreciate the aforesaid issue involved in the light
of the mandate of the scheme of law governing the subject as enshrined in
the Act, it has become necessary to extract Section 13(3-A) as well as
Section 14 of the Act which read thus:
"13 (3-A): If, on receipt of the notice under sub-section (2), the
borrower makes any representation or raise 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 fifteen days of
receipt of such representation or objection the reasons for non-acceptance
of the representation or objection to the borrower."
CM(M) No. 30/2020; CM No. 1262/2020
"14. Chief Metropolitan Magistrate or District Magistrate to
assist secured creditor in taking possession of secured asset:
(1) Where the possession of any secured assets is required to be
taken by the secured creditor or if any of the secured assets is required to
be sold or transferred by the secured creditor under the provisions of this
Act, the secured creditor may, for the purpose of taking possession or
control of any such secured assets, request, in writing, the Chief
Metropolitan Magistrate or the District Magistrate within whose
jurisdiction any such secured asset or other documents relating thereto
may be situated or found, to take possession thereof, and the Chief
Metropolitan Magistrate or as the case may be, the District Magistrate
shall, on such request being made to him--
(a) take possession of such asset and documents relating thereto;
and
(b) forward such asset and documents to the secured creditor:
Provided that any application by the secured creditor shall be
accompanied by an affidavit duly affirmed by the authorised officer of the
secured creditor, declaring that--
(i) the aggregate amount of financial assistance granted and the
total claim of the Bank as on the date of filing the application;
(ii) the borrower has created security interest over various
properties and that the Bank or Financial Institution is holding a valid and
subsisting security interest over such properties and the claim of the Bank
or Financial Institution is within the limitation period;
(iii) the borrower has created security interest over various
properties giving the details of properties referred to in sub-clause
(ii)above;
(iv) the borrower has committed default in repayment of the
financial assistance granted aggregating the specified amount;
(v) consequent upon such default in repayment of the financial
assistance the account of the borrower has been classified as a non-
performing asset;
(vi) affirming that the period of sixty days notice as required by the
provisions of sub-section (2) of section 13, demanding payment of the
defaulted financial assistance has been served on the borrower;
(vii) the objection or representation in reply to the notice received
from the borrower has been considered by the secured creditor and reasons
for non-acceptance of such objection or representation had been
communicated to the borrower;
(viii) the borrower has not made any repayment of the financial
assistance in spite of the above notice and the Authorised Officer is,
therefore, entitled to take possession of the secured assets under the
provisions of sub-section (4) of section 13 read with section 14 of the
principal Act;
CM(M) No. 30/2020; CM No. 1262/2020
(ix) that the provisions of this Act and the rules made thereunder
had been complied with:
Provided further that on receipt of the affidavit from the
Authorised Officer, the District Magistrate or the Chief Metropolitan
Magistrate, as the case may be, shall after satisfying the contents of the
affidavit pass suitable orders for the purpose of taking possession of the
secured assets1 [within a period of thirty days from the date of
application]:
Provided also that if no order is passed by the Chief Metropolitan
Magistrate or District Magistrate within the said period of thirty days for
reasons beyond his control, he may, after recording reasons in writing for
the same, pass the order within such further period but not exceeding in
aggregate sixty days.]
Provided also that the requirement of filing affidavit stated in the
first proviso shall not apply to proceeding pending before any District
Magistrate or the Chief Metropolitan Magistrate, as the case may be, on
the date of commencement of this Act.]
[(1A) The District Magistrate or the Chief Metropolitan Magistrate
may authorise any officer subordinate to him--
(i) to take possession of such assets and documents relating thereto;
and
(ii) to forward such assets and documents to the secured creditor.
(2) For the purpose of securing compliance with the provisions of
sub-section (1), the Chief Metropolitan Magistrate or the District
Magistrate may take or cause to be taken such steps and use, or cause to be
used, such force, as may, in his opinion, be necessary.
(3) No act of the Chief Metropolitan Magistrate or the District
Magistrate1 [any officer authorised by the Chief Metropolitan Magistrate
or District Magistrate] done in pursuance of this section shall be called in
question in any court or before any authority."
A conjoint reading of the above two Sections of the Act, makes
it axiomatic beyond any shadow of doubt that, if on the receipt of the notice
under sub-section 2, the borrower makes any representation or raises any
Objection, the secured creditor has to consider such representation or
Objection and communicate the decision thereon to the borrower within
fifteen days. It follows that, thereafter, the application of the secured
creditor, under Section 14, has to be accompanied by an Affidavit duly
affirmed by the Authorized Officer of the secured creditor declaring that the
CM(M) No. 30/2020; CM No. 1262/2020
Objection or representation in reply to the notice received from the
borrower has been considered by the secured creditor and reasons for non-
acceptance of such Objection or representation had been communicated to
the borrower and that, on receipt of the affidavit from the Authorized
Officer, the concerned Magistrate has to satisfy itself qua the contents of
the Affidavit and pass suitable orders for the purpose of taking possession
of the secured assets. In the case in hand, the Respondent-Bank, in the
proceedings initiated under Section 14 of the Act at their instance, filed an
Affidavit stating therein that the Petitioners did not reply to the notice
issued under Section 13(2) of the Act and, on the basis of the said averment
made in the Affidavit, the learned Magistrate has passed the impugned
Order dated 16th of January, 2020. As mentioned hereinabove, in the
Counter Affidavit filed by the Respondent-Bank before this Court,
however, it is submitted that the Petitioners, in fact, responded to the notice
under Section 13(2) but same got misplaced and could not be taken into
consideration prior to proceeding ahead in the matter in terms of Section 14
of the Act nor was the decision taken thereto communicated to the
Petitioners in tune with the mandate of the Act. Consequently, the
satisfaction arrived at by the learned Chief Judicial Magistrate in passing
the impugned Order is not only contrary to records, but also against the
mandate of Section 14 of the Act itself. In this context, the object and
purpose of the mandate of the Act, more particularly Sections 13(3-A) and
14, have been defeated, thereby vitiating the proceedings initiated by the
Bank under Section 14 of the Act.
CM(M) No. 30/2020; CM No. 1262/2020
17. This view, as taken by us hereinabove, is fortified by the law
laid down by the Supreme Court in an identical case titled 'Mardia
Chemicals Ltd. V. Union of India, AIR 2004 Supreme Court 2371'.
18. At this stage, Mr Z. A. Shah, the learned Senior Counsel,
representing the Respondent-Bank, submitted that the Order passed by the
learned Magistrate is in tune with the scheme of law governing the subject.
While further strengthening the argument, the learned Senior Counsel
submitted that the conduct of the predecessor-in-interest of the Petitioners
in having accepted the liability and defaulting in repaying the same is such
that mere filing of representation and non-communication of the decision
thereto will not make any difference to the outcome of the instant case. It is
pleaded that on the strength of the conduct of the debtor, the law is no more
res integra inasmuch as mere non-communication of the decision on the
representation filed by the debtor does not vitiate the proceedings. In this
behalf, Mr Shah has referred to and relied upon Paragraph Nos. 33 and 34
of the Judgment rendered by the Supreme Court on the subject in case titled
'ITC Limited v. Blue Coast Hotels Ltd. & Ors.', passed in 'Civil Appeal
Nos. 2928-2930 of 2018 arising out of SLP (C) Nos. 10215-10217/2016'.
On consideration of the submission made by the learned Senior Counsel for
the Respondent-Bank in the light of the application of the law referred to
hereinabove, we are of the opinion that a Judgment has to be applied to a
particular case in the light of the facts and circumstances of that case only
and, in the instant case, the facts are altogether different as compared to
those involved in the Judgment referred to and relied upon by the learned
CM(M) No. 30/2020; CM No. 1262/2020
Senior Counsel. On an overall appreciation of the Judgment passed by the
Supreme Court, we feel that the said Judgment has been passed keeping in
view the peculiar facts and circumstances of that case and, therefore, we
declare the said Judgment as distinguishable and not applicable to the facts
and circumstances of the present case.
19. The afore being the position, we are of the considered opinion
that the impugned Order dated 16th of January, 2020 cannot sustain in the
eyes of law and, as a sequel thereto, this Petition is allowed and the Order
dated 16th of January, 2020 is set aside. The Respondent-Bank, however,
shall be at liberty to proceed in the matter afresh at the stage of 13(2) of the
Act, if they so choose.
(Puneet Gupta) (Ali Mohammad Magrey)
Judge Judge
SRINAGAR
May 9th, 2022
"TAHIR"
i. Whether the Order is speaking? Yes/ No
ii. Whether the Order is reportable? Yes/ No
TAHIR MANZOOR BHAT
2022.05.11 14:24
I attest to the accuracy and
integrity of this document
