Madras High Court
Karpagavalli Charitable Trust vs Incred Financial Services Ltd on 10 October, 2022
W.P(MD) No.11234 of 2022
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED : 10.10.2022
CORAM:
THE HONOURABLE MR.JUSTICE R.MAHADEVAN
and
THE HONOURABLE MR.JUSTICE J.SATHYA NARAYANA PRASAD
W.P.(MD) No.11234 of 2022
and
W.M.P(MD) Nos.8013 to 8015 of 2022
1.Karpagavalli Charitable Trust,
Thai Mookambigai Nagar,
Maruthupandiar First Street,
Sivagangai Main Road,
Madurai – 625 020.
2.B.Karpagavalli
3.B.Ramanand
4.B.Ramakarthikeyan
5.B.Ramarun ... Petitioners
-vs-
Incred Financial Services Ltd.,
Formerly Visu Leasing and Finance Ltd.,
Rep. by its Authorised Officer,
R.Sivamanikandan ... Respondent
PRAYER: Petition filed under Article 226 of the Constitution of India,
to issue a Writ of Certiorarified Mandamus, calling for the records of
respondent herein pertaining possession notice and subsequent order
passed by the Chief Judicial Magistrate in Cr.M.P.No.147 of 2022 and
quash it as illegal and consequently direct the respondent bank to give
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W.P(MD) No.11234 of 2022
breathing time and accept part payment and thereby reclassify the loan
account as performing account.
For Petitioners : Mr.B.P.Rathina Prakash
For Respondent : Mr.M.Jegadeesh Pandian
ORDER
(Order of the Court was made by R.MAHADEVAN, J.)
Challenging the order dated 17.03.2022, passed under the
provisions of the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 (hereinafter referred to as
''the Act'') by the learned Chief Judicial Magistrate, Madurai, the
petitioner has come forward with this writ petition.
2. Heard Mr.B.P.Rathina Prakash, learned counsel for the
petitioners and Mr.M.Jegadeesh Pandian, learned counsel, appearing for
the respondent.
3. Though there is availability of expeditious and effective
remedies under the SARFAESI Act, this writ petition has been filed,
since the Debts Recovery Tribunal, Madurai, is not functional. Before
going into the issue raised in this writ petition, we deem it fit to consider
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the following sequence of the provisions under the SARFAESI Act and
the decisions of the Hon'ble Supreme Court as well as this Court in this
regard, which will make one understand about the enforcement of
security interest by the Banks or financial institutions in case of default
in repayment of secured debt, vice versa the rights of the borrower
against such enforcement.
4. Section 13 of the Act, which deals with enforcement of security
interest, states that notwithstanding anything contained in Sections 69 or
69A of the Transfer of Property Act, 1882, any security interest created in
favour of any secured creditor may be enforced, without the court's
intervention, by such creditor in accordance with the provisions of the
Act.
5. Section 13(2) of the Act provides that when 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 non-
performing 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
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exercise all or any of the rights given in Section 13(4) of the Act.
6. Section 13(3) of the Act provides that the notice under Section
13(2) of the Act shall give details of the amount payable by the borrower
as also the details of the secured assets intended to be enforced by the
bank. Section 13(3-A) of the Act was inserted by Act 30 of 2004 after the
decision of this Court in Mardia Chemicals vs. Union of India reported
in (2004) 4 SCC 311 and provides for a last opportunity for the borrower
to make a representation to the secured creditor against the classification
of his account as a non-performing asset. The secured creditor is required
to consider the representation of the borrowers, and if the secured
creditor comes to the conclusion that the representation is not tenable or
acceptable, then he must communicate, within one week of the receipt of
the communication by the borrower, the reasons for rejecting the same.
7. Section 13(4) of the Act provides that if the borrower fails to
discharge his liability within the period specified in Section 13(2), then
the secured creditor, may take recourse to any of the following actions, to
recover his debt, namely-
"(a) take possession of the secured assets of the borrower
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including the right to transfer by way of lease, assignment or sale
for realising the secured asset;
(b) take over the management of the business of the
borrower including the right to transfer by way of lease,
assignment or sale for realising the secured asset:
Provided that the right to transfer by way of lease,
assignment or sale shall be exercised only where the substantial
part of the business of the borrower is held as security for the
debt:
Provided further that where the management of whole, of
the business or part of the business is severable, the secured
creditor shall take over the management of such business of the
borrower which is relatable to the security for the debt;
(c) appoint any person (hereafter referred to as the
manager), to manage the secured assets the possession of which
has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person
who has acquired any of the secured assets from the borrower and
from whom any money is due or may become due to the
borrower, to pay the secured creditor, so much of the money as is
sufficient to pay the secured debt."
8. Section 14 of the Act provides that the secured creditor can file
an application before the Chief Metropolitan Magistrate or the District
Magistrate, within whose jurisdiction, the secured asset or other
documents relating thereto, are found for taking possession thereof. If
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W.P(MD) No.11234 of 2022
any such request is made, the Chief Metropolitan Magistrate or the
District Magistrate, as the case may be, is obliged to take possession of
such asset or document and forward the same to the secured creditor.
Therefore, it follows that a secured creditor may, in order to enforce his
rights under Section 13(4), in particular Section 13(4)(a), may take
recourse to Section 14 of the Act.
9. Section 17 of the Act which provides for an appeal to the Debts
Recovery Tribunal, reads as follows:-
"17. Right to appeal.--(1) Any person (including
borrower), aggrieved by any of the measures referred to in sub-
section (4) of Section 13 taken by the secured creditor or his
authorised officer under this Chapter, may make an application
along with such fee, as may be prescribed to the Debts Recovery
Tribunal having jurisdiction in the matter within forty-five days
from the date on which such measures had been taken:
Provided that different fees may be prescribed for making
the application by the borrower and the person other than the
borrower.
Explanation.--For the removal of doubts it is hereby
declared that the communication of the reasons to the borrower
by the secured creditor for not having accepted his representation
or objection or the likely action of the secured creditor at the
stage of communication of reasons to the borrower shall not
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W.P(MD) No.11234 of 2022
entitle the person (including borrower) to make an application to
the Debts Recovery Tribunal under sub-section (1) of Section 17.
(2) The Debts Recovery Tribunal shall consider whether
any of the measures referred to in sub-section (4) of Section 13
taken by the secured creditor for enforcement of security are in
accordance with the provisions of this Act and the rules made
thereunder."
10. As per Section 18(1) of the Act, any person aggrieved, by any
order made by the Debts Recovery Tribunal under section 17, may prefer
an appeal along with such fee, as may be prescribed, to an Appellate
Tribunal within thirty days from the date of receipt of the order of Debts
Recovery Tribunal.
The first proviso states that different fees may be prescribed for
filing an appeal by the borrower or by the person other than the borrower.
The second proviso to Section 18 of the Act states that no appeal
shall be entertained unless the borrower has deposited with the Appellate
Tribunal fifty per cent of the amount of debt due from him, as claimed by
the secured creditors or determined by the Debts Recovery Tribunal,
whichever is less.
The third proviso states that the Appellate Tribunal may, for the
reasons to be recorded in writing, reduce the amount to not less than
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W.P(MD) No.11234 of 2022
twenty five per cent of debt referred to in the second proviso.
As per Section 18(2) of the Act, save as otherwise provided in this
Act, the Appellate Tribunal shall, as far as may be, dispose of the appeal
in accordance with the provisions of the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 (51 of 1993) and rules made
thereunder.
11. As regards the Non-Maintainability of writ petition under
Article 226 against proceedings under SARFAESI Act, it is relevant to
consider the following judgments:-
(i) In S.Ganesamoorthi Vs. The Branch Manager & Ors.,
W.P.(MD).No.22536 of 2021, dated 20.12.2021, the Hon'ble First Bench
of this Court has held that though Presiding officer is not available in
DRT, Madurai, incharge is given to Coimbatore and therefore, liberty is
given to writ petitioner to move DRT, Coimbatore.
(ii) In ICICI Bank Ltd. v. Umakanta Mohapatra, (2019) 13
SCC 497 : (2018) 5 SCC (Civ) 812: 2018 SCC OnLine SC 2349, the
Hon'ble Supreme Court has held as follows:-
"2. Despite several judgments of this Court, including a
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W.P(MD) No.11234 of 2022
judgment by Hon'ble Navin Sinha, J., as recently as on 30-1-2018,
in State Bank of Travancore v. Mathew K.C. [State Bank of
Travancore v. Mathew K.C., (2018) 3 SCC 85 : (2018) 2 SCC
(Civ) 41] , the High Courts continue to entertain matters which
arise under the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002
(SARFAESI), and keep granting interim orders in favour of
persons who are non-performing assets (NPAs)."
3. The writ petition itself was not maintainable, as a result
of which, in view of our recent judgment, which has followed
earlier judgments of this Court, held as follows: (SCC p. 94, para
17)
"17. We cannot help but disapprove the approach of
the High Court for reasons already noticed in Dwarikesh Sugar
Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd.
[Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering
Works (P) Ltd., (1997) 6 SCC 450] , observing: (SCC p. 463, para
32)
32. When a position, in law, is well settled as a
result of judicial pronouncement of this Court, it would amount to
judicial impropriety to say the least, for the subordinate courts
including the High Courts to ignore the settled decisions and then
to pass a judicial order which is clearly contrary to the settled
legal position. Such judicial adventurism cannot be permitted and
we strongly deprecate the tendency of the subordinate courts in
not applying the settled principles and in passing whimsical
orders which necessarily has the effect of granting wrongful and
unwarranted relief to one of the parties. It is time that this
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tendency stops.''
(iii) In United Bank of India v. Satyawati Tondon, (2010) 8
SCC 110, the Hon'ble Supreme Court has held as follows:-
"42. There is another reason why the impugned order
should be set aside. If Respondent 1 had any tangible grievance
against the notice issued under Section 13(4) or action taken
under Section 14, then she could have availed remedy by filing an
application under Section 17(1). The expression "any person"
used in Section 17(1) is of wide import. It takes within its fold,
not only the borrower but also the guarantor or any other person
who may be affected by the action taken under Section 13(4) or
Section 14. Both, the Tribunal and the Appellate Tribunal are
empowered to pass interim orders under Sections 17 and 18 and
are required to decide the matters within a fixed time schedule. It
is thus evident that the remedies available to an aggrieved person
under the SARFAESI Act are both expeditious and effective.
43. Unfortunately, the High Court overlooked the settled
law that the High Court will ordinarily not entertain a petition
under Article 226 of the Constitution if an effective remedy is
available to the aggrieved person and that this rule applies with
greater rigour in matters involving recovery of taxes, cess, fees,
other types of public money and the dues of banks and other
financial institutions. In our view, while dealing with the petitions
involving challenge to the action taken for recovery of the public
dues, etc., the High Court must keep in mind that the legislations
enacted by Parliament and State Legislatures for recovery of such
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dues are a code unto themselves inasmuch as they not only
contain comprehensive procedure for recovery of the dues but
also envisage constitution of quasi-judicial bodies for redressal of
the giievance of any aggrieved person. Therefore, in all such
cases, the High Court must insist that before availing remedy
under Article 226 of the Constitution, a person must exhaust the
remedies available under the relevant statute.''
(iv) In Kanaiyalal Lalchand Sachdev v. State of
Maharashtra(2011) 2 SCC 782, the Apex Court has held as follows:-
''23. In our opinion, therefore, the High Court rightly
dismissed the petition on the ground that an efficacious remedy
was available to the appellants under Section 17 of the Act. It is
well settled that ordinarily relief under Articles 226/227 of the
Constitution of India is not available if an efficacious alternative
remedy is available to any aggrieved person. (See Sadhana Lodh
v. National Insurance Co. Ltd. [(2003) 3 SCC 524 : 2003 SCC
(Cri) 762] , Surya Dev Rai v. Ram Chander Rai [(2003) 6 SCC
675] and SBI v. Allied Chemical Laboratories [(2006) 9 SCC
252].)"
(v) In Agarwal Tracom (P) Ltd. v. Punjab National Bank
(2018) 1 SCC 626, the Apex Court has held as follows:-
"33. In the light of the foregoing discussion, we are of the
considered opinion that the writ court as also the appellate court
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were justified in dismissing the appellant's writ petition on the
ground of availability of alternative statutory remedy of filing an
application under Section 17(1) of the SARFAESI Act before the
Tribunal concerned to challenge the action of PNB in forfeiting
the appellant's deposit under Rule 9(5). We find no ground to
interfere with the impugned judgment."
(vi) In C. Bright v. Distt. Collector (2021) 2 SCC 392, the
Hon'ble Supreme Court has held as follows:-
"22. Even though, this Court in United Bank of India v.
Satyawati Tondon [United Bank of India v. Satyawati Tondon,
(2010) 8 SCC 110 (2010) 3 SCC (Civ) 260] held that in cases
relating to recovery of the dues of banks, financial institutions
and secured creditors, stay granted by the High Court would have
serious adverse impact on the financial health of such
bodies/institutions, which will ultimately prove detrimental to the
economy of the nation. Therefore, the High Court should be
extremely careful and circumspect in exercising its discretion to
grant stay in such matters. Hindon Forge (P) Ltd. [Hindon Forge
(P) Ltd. v. State of U.P., (2019) 2 SCC 198 : (2019) 1 SCC (Civ)
551] has held that the remedy of an aggrieved person by a secured
creditor under the Act is by way of an application before the
Debts Recovery Tribunal, however, borrowers and other
aggrieved persons are invoking the jurisdiction of the High Court
under Articles 226 or 227 of the Constitution of India without
availing the alternative statutory remedy. The Hon'ble High
Courts are well aware of the limitations in exercising their
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jurisdiction when effective alternative remedies are available, but
a word of caution would be still necessary for the High Courts
that interim orders should generally not be passed without hearing
the secured creditor as interim orders defeat the very purpose of
expeditious recovery of public money."
12. As regards the non-maintainability of the writ petition
against Private financial institutions like assets re-construction
companies in respect of their action under SARFAESI Act, it is relevant
to consider the decision of the Hon'ble Supreme Court in Phoenix ARC
(P) Ltd. v. Vishwa Bharati Vidya Mandir, (2022) 5 SCC 345 : 2022
SCC OnLine SC 44, wherein, it has been held as follows:-
''18. Even otherwise, it is required to be noted that a writ
petition against the private financial institution — ARC — the
appellant herein under Article 226 of the Constitution of India
against the proposed action/actions under Section 13(4) of the
SARFAESI Act can be said to be not maintainable. In the present
case, the ARC proposed to take action/actions under the
SARFAESI Act to recover the borrowed amount as a secured
creditor. The ARC as such cannot be said to be performing public
functions which are normally expected to be performed by the
State authorities. During the course of a commercial transaction
and under the contract, the bank/ARC lent the money to
borrowers herein and therefore the said activity of the bank/ARC
cannot be said to be as performing a public function which is
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W.P(MD) No.11234 of 2022
normally expected to be performed by the State authorities. If
proceedings are initiated under the SARFAESI Act and/or any
proposed action is to be taken and the borrower is aggrieved by
any of the actions of the private bank/bank/ARC, borrower has to
avail the remedy under SARFAESI Act and no writ petition
would lie and/or is maintainable and/or entertainable. Therefore,
decisions of this Court in Praga Tools Corpn. [Praga Tools Corpn.
v. C.A. Manual, (1969) 1 SCC 585] and Ramesh Ahiuwalia
[Ramesh Ahluwalia v. State of Punjab, (2012; 12 SCC 331 :
(2013) 3 SCC (L&S) 456: 4 SCEC 715] relied upon by the
learned counsel appearing on behalf of the borrowers are not of
any assistance to the borrowers."
13. According to the learned counsel for the petitioners, the total
outstanding amount as on 21.12.2021 is about Rs.62,59,563/-.
14. Today, when the matter was taken up for hearing, the learned
counsel for the petitioners submitted that the petitioner is ready to pay
Rs.7,50,000/- (Rupees Seven Lakhs and Fifty Thousand only) on or
before 10.11.2022 and another Rs.7,50,000/- (Rupees Seven Lakhs and
Fifty Thousand only) on or before 10.12.2022 and for the remaining
outstanding amount, the learned counsel for the petitioners seeks liberty
to submit a representation before the respondent – Finance Company for
OTS / restructuring the loan, for which, the learned Standing Counsel for
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W.P(MD) No.11234 of 2022
the respondent is agreeable, however, with liberty to the respondent to
proceed against the petitioner in case of default in payment of any one of
the instalments.
15. Considering the various facts and circumstances, this Court is
of the view that the petitioners can be shown some indulgence. Hence,
this Court is inclined to dispose of the Writ Petition in the following
terms:-
(i) Upon the petitioners paying a sum of Rs.7,50,000/- (Rupees
Seven Lakhs and Fifty Thousand only) on or before 10.11.2022 and
another Rs.7,50,000/- (Rupees Seven Lakhs and Fifty Thousand only) on
or before 10.12.2022, the respondent is directed not to proceed further
pursuant to the impugned order.
(ii) In case, the petitioners commit any default in paying any one of
the instalments, it is open to the respondent finance company to proceed
further in accordance with law.
(iii) If the petitioners make payment as indicated above, they may
approach the respondent and submit a representation within a period of
two weeks from the payment of last instalment either for waiver of penal
interest or for One Time Settlement or for restructuring the loan or for
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W.P(MD) No.11234 of 2022
any other concession, as may be permissible under the guidelines of
Reserve Bank of India or the norms applicable to the respondent finance
company.
(iv) The respondent finance company shall consider the same and
pass appropriate orders in accordance with law.
(v) Till such time, the respondent consider the representation of the
petitioners and communicate the decision taken to the petitioners, the
respondent finance company shall not initiate any coercive action against
the petitioner.
16. The Writ Petition is disposed of with the above directions. No
costs. Consequently, connected miscellaneous petitions are closed.
[R.M.D., J.] [J.S.N.P., J.]
10.10.2022
Index : Yes / No
Internet : Yes / No
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W.P(MD) No.11234 of 2022
R.MAHADEVAN, J.
and
J.SATHYA NARAYANA PRASAD, J.
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W.P.(MD) No.11234 of 2022
10.10.2022
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