Madras High Court
M/S.First Step Public School vs The Authorized Officer on 11 October, 2022
W.P(MD)No.23377 of 2022
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED : 11.10.2022
CORAM:
THE HONOURABLE MR.JUSTICE R.MAHADEVAN
and
THE HONOURABLE MR.JUSTICE J.SATHYA NARAYANA PRASAD
W.P(MD)No.23377 of 2022
and
W.M.P(MD)No.17449 of 2022
1.M/s.First Step Public School,
Represented by its Chairman,
P.Krishna Moorthy.
2.M/s.Centre for Human and Natural Resources Development,
Represented by its Secretary,
P.Krishnamoorthy.
3.M/s.Amutham Foundation,
Represented by its Chairman/Managing Trustee,
P.Krishna Moorthy.
4.P.Krishnamoorthy ... Petitioners
vs.
1.The Authorized Officer,
Varthana Finance Private Limited,
(Formerly known as Thirumeni Finance Private Limited),
Registered Office : Varasiddhi, 3rd Floor,
5BC-110 Service Road, 3rd Block,
HRBR Layout, Bangalore – 560 043.
1/18
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2.Varthana Finance Private Limited,
(Formerly known as Thirumeni Finance Private Limited),
Registered Office : Varasiddhi, 3rd Floor,
5BC-110 Service Road, 3rd Block,
HRBR Layout, Bangalore – 560 043.
3.Debts Recovery Tribunal – Madurai,
III & IV Floor, Kalyani Towers,
4/162 Madurai – Melur Road,
(Near Meenakshi Mission Hospital),
Uthangudi Post,
Madurai – 625 107. ... Respondents
PRAYER : Writ Petition filed under Article 226 of the Constitution of India
praying for issuance of a Writ of Certiorari, calling for the records pertaining
to the auction sale notice dated 19.09.2022 issued by the first respondent
and quash the same.
For Petitioner : Mr.V.Veera Pandian
For RR 1 & 2 : Mr.A.Sivasubramanian
Standing Counsel
For R – 3 : Mr.V.Malaiyendran
ORDER
(Order of the Court was made by R.MAHADEVAN, J.)
Challenging the auction sale notice, dated 19.09.2022 issued by
the first respondent, the petitioners have come forward with this Writ
Petition.
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2. 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.
3. Before going into the issue raised in this writ petition, we deem
it fit to consider the relevant 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 Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred
to as ''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.
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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 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
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W.P(MD)No.23377 of 2022
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
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;
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W.P(MD)No.23377 of 2022
(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 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-
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W.P(MD)No.23377 of 2022
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 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
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W.P(MD)No.23377 of 2022
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
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
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W.P(MD)No.23377 of 2022
226 against proceedings under SARFAESI Act, it is relevant to consider the
following judgments:-
(i) 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
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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 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.''
(ii) 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
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SCC 675] and SBI v. Allied Chemical Laboratories [(2006) 9 SCC
252].)"
(iii) 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
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
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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 tendency stops.''
(iv) 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
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."
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(v) 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
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
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the very purpose of expeditious recovery of public money."
(vi) 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.
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
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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 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."
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13. The learned counsel appearing for the respondent – Bank
submitted that the outstanding amount as on date is around
Rs.5,60,59,256/-.
14. Today, when the matter was taken up for hearing, the
learned counsel appearing for the petitioner submitted that the sale is
scheduled to be held on 12.10.2022 and further submitted that the
petitioner is ready to pay a sum of Rs.1,00,00,000/- (Rupees One Crore
Only) on or before 26.10.2022 and the remaining outstanding amount
within six months therefrom, for which, the learned Standing Counsel for
the respondent Bank is agreeable, however, with liberty to the respondent
Bank to proceed against the petitioner in case of default in payment of any
one of the instalments.
15. Considering the submissions made on either side, we direct
that the sale as scheduled may go on, but confirmation of the sale shall not
be done. The petitioner is directed to pay a sum of Rs.1,00,00,000/-
(Rupees One Crore Only) on or before 26.10.2022 and the remaining
outstanding amount shall be paid in six consecutive equal monthly
instalments. The first instalment shall be paid on or before 11.12.2022 and
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the subsequent five instalments shall be paid on or before 11th day of every
English Calendar month until the entire payment is made. If the petitioner
fails to pay the amount in any one of the instalments, the respondent Bank
may proceed further in accordance with law and confirm the sale. No costs.
Consequently, connected Miscellaneous Petition is closed.
[R.M.D.,J.] [J.S.N.P.,J.]
11.10.2022
(2/2)
Index : Yes / No
Internet : Yes
ps
To
1.The Authorized Officer,
Varthana Finance Private Limited,
(Formerly known as Thirumeni Finance Private Limited),
Registered Office : Varasiddhi, 3rd Floor,
5BC-110 Service Road, 3rd Block,
HRBR Layout, Bangalore – 560 043.
2.Varthana Finance Private Limited,
(Formerly known as Thirumeni Finance Private Limited),
Registered Office : Varasiddhi, 3rd Floor,
5BC-110 Service Road, 3rd Block,
HRBR Layout, Bangalore – 560 043.
3.Debts Recovery Tribunal – Madurai,
III & IV Floor, Kalyani Towers,
4/162 Madurai – Melur Road,
(Near Meenakshi Mission Hospital),
Uthangudi Post, Madurai – 625 107.
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W.P(MD)No.23377 of 2022
R.MAHADEVAN,J.
and
J.SATHYA NARAYANA PRASAD,J.
ps
ORDER MADE IN
W.P(MD)No.23377 of 2022
DATED : 11.10.2022
(2/2)
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