Katepalli Lavanya vs Union Bank Of India
2022 Latest Caselaw 507 Tel

      THE HON'BLE SRI JUSTICE UJJAL BHUYAN
                       AND
 THE HON'BLE SRI JUSTICE A.VENKATESHWARA REDDY

                            W.P.No.23643 OF 2020
                                    AND
                            W.P.No.20046 OF 2021

COMMON JUDGMENT AND ORDER:
(Per Hon'ble Sri Justice Ujjal Bhuyan)

        Subject       matter       of    both   the   writ   petitions   being

interlinked, those were heard together on 18.01.2022 and are

being disposed of by this common judgment and order.


2       Though 25.01.2022 was fixed for delivery of judgment,

for unavoidable circumstances, the judgment could not be

delivered on that date and is now being delivered today.


3       Heard Mr.C.B.Ram Mohan Reddy, learned counsel for

the petitioner in W.P.No.20046 of 2021; Ms. V.Dyumani,

learned counsel for respondent Nos.1 and 2 i.e. Union Bank of

India in both the writ petitions; and Mr. S. Maruti Rao, learned

counsel for respondent No.3 in W.P.No.20046 of 2021 and for

the petitioner in W.P.No.23643 of 2020.

4 For the sake of convenience, we take up Writ Petition

No.23643 of 2020 first.

5 In this case, petitioner is M/s. NECX Private Limited. By

filing this writ petition under Article 226 of the Constitution of

India, petitioner seeks quashing of notice dated 16.11.2020

issued by the first respondent under Section 13 (2) of the

Securitisation and Reconstruction of Financial Assets and

Enforcement of Securities Interest Act, 2002 (briefly referred to

hereinafter as 'the SARFAESI Act').

6 According to the petitioner it is a company incorporated

under the Companies Act, 1956, having its registered office at

Plot No.5A/4, Sy.No.48, IDA Nacharam, Road No.1,

Hyderabad. Petitioner is engaged in the business of making I.T

solutions and working for private and government agencies.

7 Petitioner had availed loan from the first respondent i.e.

Union Bank of India, Chikkadapalli Branch, Hyderabad for

about Rs.12.00 crores. Petitioner is carrying on banking

transactions with the first respondent for the last more than

14 years.

8 It is stated that first respondent wrongly classified the

loan account of the petitioner as Non Performing Asset (NPA)

on 31.03.2020. It was thereafter that first respondent issued

the impugned notice dated 16.11.2020 under Section 13 (2) of

the SARFAESI Act.

9 The aforesaid action of the first respondent has been

assailed on various grounds. It is contended that classification

of the loan account of the petitioner as NPA itself was wrong

which was further aggravated by delayed intimation to the

petitioner on 01.07.2020. According to the petitioner, first

respondent failed to take into consideration the effect of the

pandemic and the resultant nationwide lockdown which

brought all business and commercial activities to a standstill.

This naturally affected the repaying capacity of the petitioner.

Further, first respondent failed to take into consideration

payments made by the petitioner into the loan account. First

respondent also overlooked guidelines issued by the Reserve

Bank of India (RBI). Representations filed by the petitioner

failed to evoke any response.

10 Petitioner has stated that corporate office of the

petitioner was sold, whereafter a sum of Rs.1.5 crores was

paid to the first respondent to show the bona fides of the

petitioner. Petitioner requested the first respondent to issue

No Objection Certificate (NOC) to such sale so that petitioner

could realize the balance of the sale amount and pay the same

to first respondent. However, such NOC was not issued by the

first respondent for which the sale deed could not be executed.

11 It is stated that petitioner had duly complied with the

provisions of Section 13 (3A) of the SARFAESI Act by making

detailed representations. But how the first respondent dealt

with such objection has not been informed to the petitioner.

Aggrieved, present writ petition has been filed seeking the relief

as indicated above.

12 Respondents have filed a common counter affidavit

through Sri K.Naga Srikanth, Chief Manager of first

respondent who is also the authorized officer of respondent

No.1 under the SARFAESI Act. Respondents have contended

that a writ petition challenging a notice under Section 13 (2) of

the SARFAESI Act is not maintainable. In fact, such a notice

does not give rise to any cause of action for initiating an action

in law. Writ petition is premature. It is only if and when the

respondents take steps under Section 13 (4) of the SARFAESI

Act that the petitioner would have the statutory remedy of

filing securitization application before the jurisdictional Debts

Recovery Tribunal under Section 17 of the SARFAESI Act.

13 On merit it is stated that in response to letter dated

01.07.2020 issued by first respondent, petitioner replied vide

its letter dated 29.09.2020 undertaking to pay an amount of

Rs.2.10 crores directly by the purchaser to the bank and

promissed to clear the over dues. Though petitioner submitted

action plan to take the loan account out of NPA and to

regularize the same, it failed to do the needful. First

respondent, by letter dated 06.10.2020 pointed out that the

loan account of the petitioner was classified as NPA on the

basis of circulars of RBI. It was also pointed out that petitioner

had failed in repayment of outstanding dues.

14 It is further stated that vide letter dated 24.11.2020

petitioner raised objection under Section 13 (3A) of the

SARFAESI Act to the impugned demand notice dated

16.11.2020 which was duly replied to by the first respondent

vide letter dated 04.12.2020. In the letter dated 04.12.2020

respondent No.1 asserted that the loan account of the

petitioner was classified as NPA in accordance with the

guidelines issued by the RBI. Further, first respondent

provided the details of outstanding dues payable by the

petitioner.

15 Respondents have also referred to the Master Circular

dated 01.07.2014 issued by the RBI laying down broad

guidelines as to when a loan account can be declared as NPA

which according to the respondents have been duly followed in

the present case. Amount recoverable by first respondent from

the petitioner is Rs.884.36 lakhs together with interest and

other charges as on 31.03.2020. In the circumstances it is

submitted that there is no irregularity or infirmity in the

impugned notice dated 16.11.2020.

16 Petitioner has filed a rejoinder to the aforesaid counter

affidavit of the respondents.

17 Learned counsel for the petitioner submits that

respondents have acted in a very highhanded manner without

considering the ground realities. Such action is wholly

arbitrary and unreasonable and is liable to be interfered with

by this Court under Article 226 of the Constitution of India.

Referring to the decision of the Supreme Court in Mardia

Chemicals Vs. Union of India1 he submits that while

exercising power under Section 13 of the SARFAESI Act, the

1 (2004) 4 SCC 311

secured creditor has to act in a fair and judicious manner. Its

action should be reasonable, given the wide range of power

and discretion conferred on it by the statute to take coercive

recovery action without the intervention of any judicial or

quasi judicial authority. His submission is that the very

foundation for invoking jurisdiction by the first respondent

under Section 13 (2) of the SARFAESI Act is absent in the

present case as classification of the loan account of the

petitioner as NPA itself is wholly erroneous and contrary to

law.

18 On the other hand, learned counsel for the respondents

submits that the writ petition is premature. Notice under

Section 13 (2) of the SARFAESI Act or the decision of the

secured creditor rejecting the objection raised against such

notice would not give rise to any cause of action under the

SARFAESI Act to initiate an action in law. He further submits

that if and when respondents initiate action under Section 13

(4) of the SARFAESI Act, petitioner would have the statutory

remedy of filing securitization application under Section 17 of

the SARFAESI Act before a jurisdictional Debts Recovery

Tribunal. In the circumstances, learned counsel for the

respondents seeks dismissal of the writ petition.

19 Submissions made by learned counsel for the parties

have received the due consideration of the Court.

20 Before we advert to Section 13 of the SARFAESI Act, we

may refer to the impugned notice dated 16.11.2020 issued by

the first respondent. As per the said notice, petitioner was

informed that its loan account was classified as NPA on

31.03.2020 on which date the outstanding dues were

Rs.8,96,45,013-00. Petitioner was called upon to pay the

aforesaid amount together with contractual rate of interest

within 60 days from the date of receipt of such notice, failing

which it was mentioned that the first respondent would be

constrained to enforce the securities mentioned therein

created by the petitioner in favour of the first respondent by

exercising any or all the rights under the SARFAESI Act.

21 Section 13 of the SARFAESI Act deals with enforcement

of security interest. As per Sub-Section (1), 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 intervention

of the court or tribunal by such creditor in accordance with

the provisions of the SARFAESI Act. Sub-Section (2) says that

where a borrower makes any default in repayment of secured

debt or any installment thereof and his account in respect of

such debt is classified by the secured creditor as Non

Performing Asset, then the secured creditor may require the

borrower by notice in writing to discharge in full his liabilities

to the secured creditor within 60 days. Sub-Section (3) clarifies

that a notice under Sub-Section (2) should provide for the

details of the amount payable by the borrower and the secured

assets intended to be enforced by the secured creditor in the

event of non-payment of secured debt by the borrower.

22 Sub-Section (3A) of Section 13 along with its proviso are

relevant. Those are extracted hereunder:

(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises 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:

Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.

23 Before deliberating upon Sub-Sections (2), (3) and (3A) of

Section 13, it would be useful to refer to Sub-Section (4) of

Section 13. It says that in case the borrower fails to discharge

his liability in full within the period specified in Sub-Section

(2), the secured creditor may take recourse to one or more of

the measures mentioned thereunder to recover the secured

debt, including taking over of possession of the secured asset.

24 The remaining provisions of Section 13 of the SARFAESI

Act may not have much relevance insofar the present writ

petition is concerned.

25 From a conjoint reading of Sub-Sections (2), (3) and (3A)

of Section 13 of the SARFAESI Act, it is seen that if upon

receipt of a notice under Sub-Section (2) of Section 13, the

borrower makes any representation or raises 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 the reasons for nonacceptance

of the representation or objection to the borrower within a

period of 15 days of receipt of such representation or objection.

However, as per the proviso, the reasons so communicated or

the likely action of the secured creditor at the stage of

communication of reasons shall not confer any right upon the

borrower to prefer an application to the jurisdictional Debts

Recovery Tribunal under Section 17 of the SARFAESI Act or to

the Court of District Judge under Section 17A of the

SARFAESI Act.

26 At this stage we may also mention that under Section 17

(1) of the SARFAESI Act, any person including a borrower who

is aggrieved by any of the measures referred to in Sub-Section

(4) of Section 13 taken by the secured creditor or by his

authorized officer may make an application before the

jurisdictional Debts Recovery Tribunal within 45 days from the

date on which such measure has been taken. The Explanation

to Sub-Section (1) clarifies that the communication of 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 concerned including

the borrower to make an application to the jurisdictional Debts

Recovery Tribunal under Sub-Section (1) of Section 17 of the

SARFAESI Act.

27 Reverting back to Sub-Section (3A) of Section 13 of the

SARFAESI Act, this Court in Smt. Gudupati Laxmi Devi Vs.

Canara Bank, W.P.No.28291 of 2021, decided on 10.11.2021,

held as follows:

5. A careful analysis of sub-section (3-A) of Section 13 of the SARFAESI Act would go to show that upon receipt of notice issued by the secured creditor under sub-section (2), the borrower has a right to make a representation, or raise any objection, as to the notice so issued. If the borrower exercises that right, then, it is incumbent upon the secured creditor to consider such representation or objection. The use of the word 'shall' in sub- section (3-A) is indicative of the legislative intent of considering such representation or objection, by the secured creditor mandatory. If the secured creditor is not satisfied with the representation or objection, and finds it to be unacceptable, or untenable, he shall communicate such decision within fifteen days along with the reasons to the borrower.

6. While the statute is silent as to what happens in case of a positive decision by the secured creditor on consideration of such representation or objection, it is axiomatic that once the decision is taken either way, the same has to be communicated to the borrower, notwithstanding the fact that it would not give rise to a cause of action for moving an application either under Section 17 or under Section 17(A). But the fact remains that it would be obligatory on the part of the secured creditor to consider the representation or objection of the borrower, and then take a conscious decision one way or the other, which should be communicated to the borrower within fifteen days of receipt of such representation or objection.

28 Supreme Court in Mardia Chemicals (supra) and in ITC

Limited Vs. Blue Coast Hotels Limited2 stressed upon the

need of the secured creditor to consider the representation /

objection of the borrower and to communicate the decision

2 2018 SCC Online SC 237

taken thereon within the stipulated period. The secured

creditor has to act in a fair and reasonable manner.

29 In the instant case, respondent No.1 issued the

impugned notice under Section 13 (2) of the SARFAESI Act on

16.11.2020. Petitioner raised objection to such notice vide

letter dated 24.11.2020 under Section 13 (3A) of the SARFAESI

Act, which was replied to by the authorized officer of the first

respondent on 04.12.2020.

30 Thus, on a careful consideration of the statutory

language employed in the proviso to Sub-Section (3A) of

Section 13 of the SARFAESI Act read with the Explanation to

Sub-Section (1) of Section 17 of the SARFAESI Act, it is crystal

clear that a notice under Section 13 (2) of the SARFAESI Act or

the rejection of the objection raised to it including the reasons

in support thereof would not give rise to a cause of action for

instituting an action in law. To that extent, we find sufficient

force in the contention advanced by the respondents that the

writ petition filed is premature. The statute does not

contemplate any intervention at this preliminary stage. Only

when the process ripens into a definitive action taken by the

secured creditor under Sub-Section (4) of Section 13 of the

SARFAESI Act, the aggrieved person can avail the statutory

remedy under Section 17 of the SARFAESI Act by filing

securitization application before the jurisdictional Debts

Recovery Tribunal.

31 This aspect was highlighted by the Supreme Court in

Punjab National Bank Vs. Imperial Gift House3. In that

case, the High Court had interfered with the notice issued

under Section 13 (2) of the SARFAESI Act and quashed the

proceedings initiated by the Bank. Setting aside the order of

the High Court, Supreme Court held that the High Court was

not justified in entertaining the writ petition before any further

action could be taken by the Bank under Section 13 (4) of the

SARFAESI Act.

32 That being the position, we are of the view that filing of

this writ petition is misconceived. Consequently Writ Petition

No.23643 of 2020 is dismissed. However, dismissal of the writ

petition would not foreclose the remedies available to the

petitioner under the law as and when the cause of action

arises.

33 Let us now take up Writ Petition No.20046 of 2021.

34 In this writ petition Katepalli Lavanya is the petitioner.

Prayer made in this writ petition is for a direction to

respondent No.2-Union Bank of India, Chikkadapalli Branch,

Hyderabad, to release the documents of title pertaining to the

building property bearing D.No.5-a/4 in Sy.No.48, IDA,

Nacharam, Uppal, Hyderabad by receiving the balance of the

outstanding loan amount of the third respondent thereby

3 (2013) 14 SCC 622

enabling the third respondent to execute and register a sale

deed in favour of the petitioner.

35 Third respondent is M/s. NECX Private Limited,

petitioner in W.P.No.23643 of 2020. According to Katepalli

Lavanya, the petitioner, third respondent is the owner and

possessor of the building property bearing D.No.5-a/4 in

Sy.No.48, IDA, Nacharam, Uppal, Hyderabad (schedule

property or secured asset hereinafter). Respondent No.3 had

obtained loan from respondent No.2 by mortgaging the

aforesaid schedule property by depositing the title deeds.

36 It is stated that in November, 2019, third respondent had

approached the petitioner to sell the schedule property.

According to respondent No.3, he had availed loan from

respondent No.2. But the loan account had become NPA. To

avoid auction of the schedule property, third respondent

requested the petitioner to clear the outstanding loan amount.

In this regard, petitioner and respondent No.3 had entered into

an agreement for sale on 17.11.2019 as per which the sale

consideration was required to be paid by the petitioner directly

to the second respondent which amount was worked out at

Rs.3.50 crores. Respondent No.2, by letter dated 25.11.2019,

agreed on the sale consideration of Rs.3.50 crores to be

adjusted against the loan account of the third respondent and

thereafter to release the schedule property. It is stated that in

terms of the aforesaid agreement dated 17.11.2019, petitioner

paid an amount of Rs.1.00 crore on 19.11.2019. The balance

amount of Rs.2.50 crores was agreed to be paid at the time of

execution of the sale deed for which the outer time limit was

fixed at three months from the date of the agreement.

37 Though respondent No.3 failed to show the original link

documents of title to the banker / financier of the petitioner to

enable her to arrange the necessary finances, nonetheless,

petitioner paid the following further amounts by way of

cheques:

           (i)     Rs.10.00 lakhs on 27.02.2020

           (ii)    Rs.5.00 lakhs on 27.02.2020

           (iii)   Rs.5.00 lakhs on 15.06.2020

           (iv)    Rs.25.00 lakhs on 29.06.2020

38    Thus, according to the petitioner she had paid a total

amount of Rs.1,45,00,000-00 and was ready to pay the

remaining balance amount of Rs.2,05,00,000-00 to respondent

No.2 whenever the third respondent released the title deeds of

the schedule property. It is asserted that the amount of

Rs.1,45,00,000-00 paid by the petitioner to the third

respondent has been deposited in the loan account of the third

respondent.

39 On one pretext or the other, third respondent did not

show the original documents of title of the schedule property

to the petitioner and in the meanwhile the pandemic broke

out. As a result the sale deed could not be executed.

40 Third respondent issued a notice dated 25.06.2021

calling upon the petitioner to pay the balance amount within

15 days and to get the sale deed executed. Petitioner replied

on 10.07.2021, marking a copy to respondent No.2, stating

that she was ready to pay the balance amount and sought for

fixation of a date for execution of the sale deed. However,

respondent No.2 informed the petitioner by letter dated

19.07.2021 that it was not a party to the agreement between

petitioner and respondent No.3.

41 It is in such circumstances that the present writ petition

has been filed seeking the relief as indicated above.

42 Respondent Nos.1 and 2, in their common counter

affidavit, have stated that there is no privity of contract

between the petitioner and respondent Nos.1 and 2. On the

contrary, it is respondent No.3 who is liable to pay a sum of

Rs.884.366 lakhs together with interest as on 31.03.2020 to

respondent No.2.

43 The dispute is between petitioner and respondent No.3

and it is for the petitioner to initiate a civil action for specific

performance of contract against third respondent. According

to respondent Nos.1 and 2, third respondent has created

mortgage by way of deposit of title deeds under Section 58 (f) of

the Transfer of Property Act, 1882, over the secured asset on

16.11.2009. The alleged agreement for sale dated 17.11.2019

is subsequent to the creation of mortgage by respondent No.3.

44 Respondent No.3 had approached respondent No.2

seeking permission for release of the secured asset.

Respondent No.2, vide letter dated 25.11.2019, conveyed the

permission for sale of the secured asset subject to the

condition that the entire sale consideration should be

deposited with respondent No.2. Respondent No.2 has

acknowledged receipt of Rs.1.00 crore out of the sale

consideration of Rs.3.50 crores. It is stated that once the total

sale proceeds of Rs.3.50 crores as per the agreement for sale is

received, respondent No.2 would release the secured asset.

However, respondent No.3 has not yet paid the balance

amount of Rs.2.50 cores as per the agreement.

45 On the contrary, the loan account of respondent No.3

became NPA pursuant to which respondent No.2 initiated

proceedings under the SARFAESI Act and issued demand

notice dated 16.11.2020 which is the subject matter of

challenge in W.P.No.23643 of 2020 filed by the third

respondent.

46 Third respondent has also filed counter affidavit. It is

stated that because of financial crunch respondent No.3 had

entered into agreement for sale with the petitioner on

17.11.2019 for sale of the office building (schedule property)

for a total sale consideration of Rs.3.50 crores payable within

three months from the date of agreement. While the petitioner

paid Rs.1.00 crore out of the total sale consideration, she

failed to pay the balance amount within the time period as per

the agreement for sale. Because of such default on the part of

the petitioner, respondent No.2 has initiated action against

respondent No.3 under the SARFAESI Act.

47 Respondent No.3 has denied that petitioner had ever

approached it for link documents. It is stated that it was well

within the knowledge of the petitioner that such documents

are in the custody of respondent No.2 and would be released

only upon full payment of the sale consideration.

48 Contending that the remedy of the petitioner is to

approach the competent civil court for specific performance of

contract, respondent No.3 seeks dismissal of the writ petition.

49 Rival submissions made are on pleaded lines. Therefore,

a detailed reference to the same is considered not necessary.

However, the submissions so made have received the due

consideration of the Court.

50 From the materials on record what is discernible is that

respondent No.3 had availed a loan from respondent No.2 by

mortgaging the schedule property. The title documents of the

schedule property are in the custody of respondent No.2.

Because of the financial crisis, respondent No.3 found it

difficult to repay the loan for which the loan account was

classified as NPA leading to action under the SARFAESI Act.

To tide over the difficult situation, respondent No.3 and

petitioner entered into an agreement for sale dated 17.11.2019

for sale of the schedule property at a sale consideration of

Rs.3.50 crores which was to be adjusted towards the loan

account of respondent No.3. In terms of the loan agreement,

petitioner paid an amount of Rs.1.00 crore on 19.11.2019. The

balance amount of Rs.2.50 crores was required to be paid

within three months from the date of agreement. It appears

that petitioner failed to pay the balance of the sale

consideration amount which has led to the present stalemate.

51 Having noticed the above, we may advert to letter dated

25.11.2019 of respondent No.2 addressed to respondent No.3.

As per the said letter, third respondent was informed that the

competent authority of respondent No.2 had permitted sale of

the corporate office of respondent No.3 (schedule property) on

the following terms and conditions:

i. The entire sale consideration should be deposited with respondent No.2 in order to clear the outstanding dues.

ii. Competent authority had instructed respondent No.2 to take fresh valuation of the property. As a result, respondent No.2 had entrusted valuation works to its panel valuers.

iii. Once the total sale proceeds i.e. Rs.3.50 crores is adjusted against the outstanding dues, respondent No.2 would be free to release the schedule property in the name of the third respondent.

52 Thus from the above, it is evident that the proposed sale

of the secured asset by respondent No.3 to the petitioner

through the agreement of sale dated 17.11.2019 had the

approval of respondent No.2. However, it was a bipartite

agreement between petitioner and respondent No.3 and

respondent No.2 was not a party to the said agreement.

53 While both respondent Nos.1 and 2 as well as

respondent No.3 have asserted that the remedy of the

petitioner is by way of a civil suit for specific performance of

contract and therefore the writ petition is not maintainable,

nonetheless, respondent Nos.1 and 2 have stated in paragraph

No.6 of their counter affidavit that once the total sale proceeds

of Rs.3.50 crores as per the agreement for sale is received, the

bank would be free to release the secured asset.

54 While admittedly the dispute raised by the petitioner is

private and contractual between petitioner and respondent

No.3 and therefore a writ petition under Article 226 of the

Constitution of India may not be the proper remedy,

nonetheless, Court is of the view that this is a matter which

can be sorted out by the petitioner, respondent No.3 and

respondent No.2 by way of negotiations. Therefore, in the facts

and circumstances of the case, while the Court is not inclined

to entertain the writ petition, Court is however of the view that

there is scope for redressal of the grievance of the petitioner

Katepalli Lavanya if all the stakeholders sit together and

thrash out a settlement which will not only benefit respondent

No.2 but also lessen the burden of respondent No.3 to a large

extent.

55 In the ultimate analysis, while we leave it to the wisdom

of the parties in W.P.No.20046 of 2021 to strive for and reach

an amicable settlement, intervention of the writ Court is not

possible.

56 Accordingly, both the writ petitions are dismissed. No

order as to costs. As a sequel, miscellaneous petitions, if any,

pending in these two writ petitions, shall also stand dismissed.

___________________ UJJAL BHUYAN, J

__________________________________ A. VENKATESHWARA REDDY, J

Date: 09.02.2022 Kvsn