Surendra Kanwar Shekhawat vs Authorized Officer, Punjab ...
2022 Latest Caselaw 15060 Raj

HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR

S.B. Civil Writ Petition No. 8090/2022

Surendra Kanwar Shekhawat W/o Brijraj Singh Shekhawat, Aged About 53 Years, Resident Of C-112, Shastri Nagar, Bhilwara (Raj.).

----Petitioner Versus

Authorized Officer, Punjab National Bank, Circle Sastra Center, First Floor, Lic Building, Sub City Center, Reti Stand, Udaipur (Raj.).

----Respondent

Connected With

S.B. Civil Writ Petition No. 8167/2022

Uchhab Kanwar W/o Bhopal Singh Shekhawat, Aged About 83 Years, Resident Of 112-C/a, Shastri Nagar, Bhilwara (Raj.).

----Petitioner Versus

Authorized Officer, Punjab National Bank, Circle Shastra Center, First Floor, Lic Building, Sub City Center, Reti Stand, Udaipur (Raj.).

                                                                 ----Respondent



For Petitioner(s)        :     Mr. Lokesh Mathur
                               Mr. Suresh Khadav
                               Mr. Naresh K. Bishnoi

For Respondent(s)        :     Mr. Dhanesh Saraswat




                                         (2 of 12)              [CW-8090/2022]


              HON'BLE MR. JUSTICE VIJAY BISHNOI

                        Judgment / Order

22/12/2022

These writ petitions have been filed by the petitioners being

aggrieved with the impugned notices dated 16.5.2022 issued by

the respondent-bank demanding peaceful possession of secured

assets of the petitioners, which were mortgaged with the

respondent-bank against a loan advanced to M/s Super Shiv

Shakti Chemicals Private Limited, Bhilwara (for short 'the principal

borrower').

Brief facts of the case are that the principal borrower

obtained loan from the respondent-bank and in respect of the

same, the petitioners stood as guarantors for repayment of the

loan and created security interest of their residential houses in

favour of the respondent-bank. When the principal borrower failed

to repay the loan amount as per the terms and conditions of the

loan agreement, the respondent-bank declared the debt as a Non-

Performing Asset (for short 'NPA') on 30.3.2017 and recalled the

advance granted to the principal borrower and notices under

Section 13(2) of the Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Act, 2002 (for short

the SARFAESI Act') were issued to the petitioners on 5.2.2019.

When the petitioners have failed to pay the dues of the

respondent-bank, notices under Section 13(4) of the SARFAESI

Act were issued by the respondent-bank on 15.5.2019 and

symbolic possession of the properties, description of which was

mentioned in the notices, was taken by the respondent-bank. The

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property in question was put to auction under Rule 8(6) of the

Security Interest (Enforcement) Rules.

The petitioners have preferred SBCWP Nos.17345/2019 and

17347/2019 before this Court claiming that without auctioning the

property of the principal borrower, the respondent-bank is

auctioning the residential properties of the petitioners. This Court,

in the above-referred writ petitions, has passed order that the

respondent-bank may carry out the auction proceedings of the

petitioners' residential properties, but the same shall not be

finalized with a further direction that the possession of the subject

properties shall also not be taken from the petitioners, without

leave of the Court. However, later on, the above referred writ

petitions were withdrawn by the petitioners on 3.2.2021 with

liberty to file fresh writ petition, as the respondent-bank has not

conducted e-auction as per the notice issued by it.

Subsequently, the respondent-bank has filed application

under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for

short 'the IB Code') before the National Company Law Trilbunal,

Jaipur (for short 'the NCLT') for initiation of Corporate Insolvency

Resolution Process (for short 'the CIRP') against the principal

borrower. Pursuant to that, a Resolution Professional was

appointed to proceed the CIRP.

During pendency of the insolvency proceedings against the

principal borrower before the NCLT, the respondent-bank has

again issued notices on 11.2.2021 whereby, the residential houses

of the petitioners were put to auction. The petitioners have again

preferred SBCWP No.4070/2021 and 4092/2021 before this Court

and this Court vide order dated 5.3.2021 has interfered in the

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matter and while issuing notices to the respondent-bank has

ordered that the respondent-bank may carry out the auction

proceedings of the petitioners' residential properties, but the same

shall not be finalized with a further direction that the possession of

the subject property shall also not be taken from the petitioners,

without leave of the Court. On 9.3.2022, the above-referred writ

petitions were dismissed as rendered infructuous by this Court

while granting liberty to the petitioners to avail appropriate

remedy available to them under the law, if occasion so arises,

probably because the auction proceedings could not take place.

After that, the respondent-bank has issued notices to the

petitioners under Section 13(4) of the SARFAESI Act on

16.5.2019, however, when the petitioners have failed to satisfy

the liabilities, the impugned notices dated 16.5.2022 have been

issued, which are challenged by the petitioners before this Court

by way of instant writ petitions.

Learned counsel for the petitioners has argued that since the

insolvency proceedings under the IB Code are already initiated

against the principal borrower, the respondent-bank cannot initiate

proceedings against the petitioners under the SARFAESI Act for

the purpose of recovery of the loan amount. It is submitted that

the provisions of Part-III of the IB Code were brought into force by

the Ministry of Corporate Affairs by issuing Notification dated

15.11.2019 by which on 1.12.2019, the provisions of Part-III in so

far as they relate to personal guarantors to corporate debtors

came into force and from the above provisions, it is clear that the

intent of the legislature is to provide single forum remedy for

realization of dues of the creditors, which is NCLT only. Learned

(5 of 12) [CW-8090/2022]

counsel has submitted that in view of availability of remedy of

initiation of insolvency or bankruptcy process against guarantor

before the NCLT, the respondent-bank could not have taken

recourse to the SARFAESI Act and, therefore, the impugned

notices dated 16.5.2022 are liable to be set aside. It is further

submitted that as per Section 60(2) of the IB Code, where a CIRP

or liquidation proceedings of a corporate debtor are pending

before the NCLT, an application relating to the insolvency

resolution or liquidation or bankruptcy or a corporate guarantor or

personal guarantor, as the case may be of such corporate debtor

shall be filed before such NCLT.

Learned counsel for the petitioners has further argued that

the respondent-bank has no authority to proceed against the

petitioners under the SARFAESI Act. It is also argued that once

the provisions of Part-III of the IB Code have been notified and

rules have been issued as regards initiation of

insolvency/bankruptcy of the guarantor, the provisions of the IB

Code take dominance over the provisions of the SARFAESI Act and

by virtue of Section 238 of the IB Code, the provisions of the Code

shall have effect not withstanding anything inconsistent contained

in the SARFAESI Act. It is further argued that the respondent-bank

ought to have approached the NCLT against the guarantors and

proceedings could not have been initiated against the petitioners

under the SARFAESI Act.

On the strength of the above arguments, learned counsel for

the petitioners has prayed that the instant writ petitions may be

allowed and the impugned notices dated 16.5.2022 may kindly be

set aside.

(6 of 12) [CW-8090/2022]

On the other hand, Mr. Dhanesh Saraswat, learned counsel

for the respondent-bank has vehemently submitted that the writ

petitions filed by the petitioners against the impugned notices are

not maintainable in view of availability of alternate remedy to

them under the SARFAESI Act. It is argued that against the

impugned notices, the petitioners have alternate remedy of filing

appeal under Section 17 of the SARFAESI Act and, therefore,

these writ petitions are not maintainable. Learned counsel for the

respondent-bank has placed reliance on the decision of the

Hon'ble Supreme Court rendered in the case of Phoenix ARC

Private Ltd. Vs. Vishwa Bharti Vidhya Mandir and Others,

reported in (2022) 5 SCC 345.

Learned counsel for the respondent-bank has also argued

that implementation of Part-III of the IB Code will not come in the

way of the respondent-bank to initiate recovery proceedings

against the petitioners for recovery of the loan amount. It is

submitted that Part-III of the IB Code provides a mechanism for

initiating insolvency process against the corporate debtor and

corporate guarantor and the provisions of Part-III of the IB Code

will apply where the financial/operational creditor desires to go for

insolvency of the corporate guarantor and if the

financial/operation creditor desires not to go for insolvency of the

corporate guarantor and desires to proceed against the personal

guarantor under the SARFAESI Act, it cannot be said to be illegal

in any manner.

It is further submitted that the insolvency proceedings are all

together different from the recovery proceedings and the

petitioners are trying to create confusion that insolvency and

(7 of 12) [CW-8090/2022]

recovery proceedings are the same. It is argued that the recovery

proceedings are independent of the CIRP initiated against the

corporate debtor because the recovery proceedings initiated

against the corporate guarantor are under the SARFAESI Act and,

therefore, it is wrong to say that since CIRP initiated against the

corporate debtor is pending, the respondent-bank cannot initiate

proceedings against the corporate guarantor under the SARFAESI

Act. It is further submitted that there is no bar in the IB Code for

proceeding against the corporate guarantor under the SARFAESI

Act.

Learned counsel has also submitted that Section 238 of the

IB Code will not come into picture in any manner because there is

no inconsistency between the IB Code and the SARFAESI Act.

Learned counsel has further submitted that the petitioners

have not approached this Court with clean hands as every time

whenever the respondent-bank took any action against them, they

approached this Court by way of filing writ petitions and on

account of that, when the auction proceedings stalled, the

petitioners withdrew the writ petitions. Learned counsel for the

respondent has, therefore, prayed that the writ petitions filed by

the petitioners may be dismissed with heavy cost.

Heard learned counsel for the parties and perused the

material available on record.

The question as to whether proceedings under the SARFAESI

Act can be initiated against the petitioner-corporate guarantors,

when insolvency proceedings are pending against principal debtor

under the IB Code is no more res integra.

(8 of 12) [CW-8090/2022]

The Hon'ble Supreme Court in State Bank of India Vs. V.

Ramakrishnan and Another, reported in (2018) 17 SCC 394,

while dealing with the aforesaid question extensively has held as

under :

"23. It is for this reason that Sub-section (2) of Section 60 speaks of an application relating to the "bankruptcy" of a personal guarantor of a corporate debtor and states that any such bankruptcy proceedings shall be filed only before the National Company Law Tribunal. The argument of the learned Counsel on behalf of the Respondents that "bankruptcy" would include SARFAESI proceedings must be turned down as "bankruptcy" has reference only to the two Insolvency Acts referred to above. Thus, SARFAESI proceedings against the guarantor can continue under the SARFAESI Act."

Relying on V. Ramakrishnan's case (supra), again the

Hon'ble Supreme Court in Lalit Kumar Jain Vs. Union of India

and Ors., reported in 2021 SCC Online SC 396, while taking

into consideration the fact that the provisions of Part-III of the IB

Code came into force vide Notification dated 15.11.2019, has held

as under :

"123. It is clear from the above analysis that Parliamentary intent was to treat personal guarantors differently from other categories of individuals. The intimate connection between such individuals and corporate entities to whom they stood guarantee, as well as the possibility of two separate processes being carried on in different forums, with its attendant uncertain outcomes, led to carving out personal guarantors as a separate species of individuals, for whom the Adjudicating authority was common with the corporate debtor to whom they had stood guarantee. The fact that the process of insolvency in Part III is to be applied to individuals, whereas the process in relation to corporate debtors, set out in Part II is to be applied to such corporate persons, does not lead to incongruity. On the other hand, there appear to be sound reasons why the forum for adjudicating

(9 of 12) [CW-8090/2022]

insolvency processes-the provisions of which are disparate-is to be common, i.e. through the NCLT. As was emphasized during the hearing, the NCLT would be able to consider the whole picture, as it were, about the nature of the assets available, either during the corporate debtor's insolvency process, or even later; this would facilitate the CoC in framing realistic plans, keeping in mind the prospect of realizing some part of the creditors' dues from personal guarantors.........

133. It is therefore, clear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor's liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. However, this Court has indicated, time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. In Maharashtra State Electricity Board (supra) the liability of the guarantor (in a case where liability of the principal debtor was discharged under the insolvency law or the company law), was considered. It was held that in view of the unequivocal guarantee, such liability of the guarantor continues and the creditor can realize the same from the guarantor in view of the language of Section 128 of the Contract Act as there is no discharge Under Section 134 of that Act.........

136. In view of the above discussion, it is held that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this Court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract."

Thus, from the above, it is clear that when the Hon'ble

Supreme Court has clearly held that approval of a resolution plan

does not ipso facto discharge a personal guarantor of her or his

liabilities under the contract of guarantee, it cannot be said that

(10 of 12) [CW-8090/2022]

simply because insolvency proceedings against the principal

borrower are pending consideration, the proceedings under the

SARFAESI Act cannot be initiated against a corporate guarantor.

Hence, the argument of learned counsel for the petitioners to this

effect is rejected as merit-less.

The argument of learned counsel for the petitioners to the

effect that in view of Section 238 of the IB Code, the Code has an

overriding effect and the proceedings under the SARFAESI Act

cannot be initiated, is also liable to be rejected, for the reason that

initiation of recovery proceedings against the principal borrower

under the IB Code and initiation of recovery proceedings under the

SARFAESI Act against the corporate guarantor being distinct and

separate statutory legal remedies available to the financial or

operational creditor. Hence, there is no question of applicability of

provisions of Section 238 of the IB Code or no question regarding

inconsistency between the provisions of the IB Code or the

SARFAESI Act has at all arise.

Learned counsel for the respondent-bank has rightly

submitted that the petitioners are trying to create confusion for

the purpose of misleading this Court by equating insolvency

proceedings with recovery proceedings, though both are quite

distinct. It is, therefore, held that the proceedings under the

SARFAESI Act are independent and totally for recovery of the loan

amount. It is true that the corporate guarantor though related to

the debt, but it cannot be said that it is related to the insolvency

of the corporate debtor. When the dispute is not only related to

the insolvency proceedings of the corporate guarantor and purely

under the SARFAESI Act for recovery of the loan amount, it cannot

(11 of 12) [CW-8090/2022]

be said that the action of the respondent-bank is suffering from

any defect.

It is to be noticed that every time when the respondent-bank

initiated any action against the petitioners under the SARFAESI

Act, writ petitions are being filed and stay orders are being

obtained and when the auction/recovery proceedings are started

on account of the said orders, the writ petitions are being

withdrawn. From the above fact, it is clear that the petitioners

have not approached this Hon'ble Court with clean intention to

evade the proceedings under the SARFAESI Act anyhow.

The Hon'ble Supreme Court from time to time has held that

the writ under Article 226 of the Constitution of India is ordinarily

not maintainable against the proceedings under the SARFAESI Act

in view of availability of statutory remedy to the aggrieved person.

Reference can be placed on United Bank of India Vs.

Satyawati Tandon and Ors., reproted in 2010 SCC Online SC

776; Authorized Officer, State Bank of Travancore Vs.

Mathew K.C., reported in 2018 SCC Online SC 55 and

Agarwal Tracom Pvt. Ltd. Vs. Punjab National Bank, 2017

SCC Online SC 1368.

Recently, the Hon'ble Supreme Court in Phoenix's case

(supra), where proceedings under Section 13(4) of the SARFAESI

Act are under scrutiny, has held as under :

"16. Assuming that the communication dated 13.08.2015 can be said to be a notice Under Section 13(4) of the SARFAESI Act, in that case also, in view of the statutory remedy available Under Section 17 of the SARFAESI Act and in view of the law laid down by this Court in the cases referred to hereinabove, the writ petitions against the notice Under Section

(12 of 12) [CW-8090/2022]

13(4) of the SARFAESI Act was not required to be entertained by the High Court.........

21. Applying the law laid down by this Court in the case of Mathew K.C. (supra) to the facts on hand, we are of the opinion that filing of the writ petitions by the borrowers before the High Court Under Article 226 of the Constitution of India is an abuse of process of the Court. The writ petitions have been filed against the proposed action to be taken Under Section 13(4). As observed hereinabove, even assuming that the communication dated 13.08.2015 was a notice Under Section 13(4), in that case also, in view of the statutory, efficacious remedy available by way of appeal Under Section 17 of the SARFAESI Act, the High Court ought not to have entertained the writ petitions........"

In view of the above discussion, I do not find any merit in

these writ petitions and the same are hereby dismissed with a cost

of Rs.10,000/- upon each petitioner.

(VIJAY BISHNOI),J

ms rathore

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