Punjab National Bank Vs. Mithilanchal Industries Pvt. Ltd. (Gujarat High Court)
In the present case, the borrower took an objection of non-compliance of sub-section (3), in his objection / representation given sub-section (3A), but despite the same the Bank – Secured Creditor in the present case rejected the objection instead of ensuring the compliance of sub-section (3). A perusal of the notice under sub-section (2) which is already reproduced above does not spell out the details of the amount payable by the borrower, but only mentions a lump sum aggregate amount. The dispute with regard to rate of interest being charged by the bank was pre-existing the stage of section 13, and therefore, when the borrower called upon the Secured Creditor to provide the details, as a fair and reasonable Secured Creditor – the appellant Bank ought to have come out with such details, justification of such details would be a different aspect, but the Bank could not withhold the details. Even the details of the secured assets had not been correctly provided as recorded by the Tribunal, which finding has not been altered or upset at any subsequent stage. If the Bank withholds the details, as in the present case, then such action cannot be sustained.
The above discussion further strengthens theanswers to both the questions. Firstly that whether the bank was required to spell out the details or not, the answer would be, `YES’ and the Bank is required to furnish the details on its own and all the more when the borrower demands it. Secondly, whether under Section 17, the Tribunal could examine the validity of the notice under Section 13(2), the answer would again be `YES’. The Tribunal has to examine the validity and only based upon the validity of notice and validity of discharge of obligation of the secured creditor under sub-sections (2), (3) and (3A) that the Tribunal would hold that the action under sub-section (4) to be valid. In the present case, such action having been held to be invalid and as the same is apparent from the record, no error could be found in the order of the Tribunal. The appellate Tribunal as also the learned Single Judge rightly dismissed the appeal and the writ petition filed by the Secured Creditor – the appellant Bank. Accordingly, the present appeals fail and are liable to be dismissed. It is ordered accordingly.
The present case, as highlighted by us in the paragraphs hereinabove, is a classic example how the judicial system is getting clogged with frivolous litigation. The facts and the circumstances that have led to the filing of the present appeal before us, leave us with no choice but to impose exemplary costs on the appellant Secured Creditor. The Hon’ble Supreme Court has stressed in a catena of matters that costs should be in real and compensatory terms and not merely symbolic. We are of the firm opinion that costs act as a deterrent to vexatious, frivolous, impractical and unnecessary litigation. The whole objective behind imposition of costs is that every litigant, especially big public sector entities, like the appellant bank, would have to think twice before engaging in such litigation, as the one before us.
The appellant Secured Creditor ought to have at the first instance corrected its mistake by issuing a fresh notice providing the details of the amount payable by the Borrower as also correcting the details of the secured assets rather than continuing to challenge it repeatedly before every possible forum and wasting its time. The litigation is ultimately going to cause suffering to the appellant Bank i.e. Secured Creditor.
We accordingly are of the view that this matter requires costs to be imposed upon the appellant Bank which we quantify at Rs.5.00 lakhs per appeal. The amount of costs to be deposited within one month from today with the Registrar General of this Court whereupon the same shall be transmitted to the Gujarat State Legal Service Authority. This amount is to be recovered from the Officers found responsible for carrying on this frivolous litigation.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. We would like to begin by the saying that the biggest problem that confronts the judiciary today is, pendency of cases. The present matter before us, certainly adds to the problem and is a classic example of how such cases contribute to the judicial system getting over-burdened. What could have been done 3 years ago by issuance of a fresh notice by merely adding a few words to satisfy the requirement laid down by law, has been delayed unnecessarily and contested in a manner that has left us bewildered. This mindset of Governmental agencies/ undertakings such as the appellant bank, a nationalised Bank before us, to engage in such frivolous, vexatious and impractical litigation demonstrates the gross indifference of the administration towards litigative diligence.
2. The present litigation initiated by the appellant Bank, right from the inception has resulted only in loss of the time of the various judicial forums that have been approached by the appellant Bank and is also a drain on the public exchequer. What perplexes us most, is that in such financial matters, the objective is quick recovery and lowering the possibility of losses. However, by engaging in the present litigation, the attitude adopted by the appellant Bank and its officers has borne results that are against the interests of the Bank and a matter that could have been laid to rest by rational thinking has been unnecessarily dragged for 3 years. When such litigation reaches our doorsteps, we feel exasperated by the inaction or rather the wrongful action and by the policy of blindly engaging in litigation before various judicial forums as entities such as the appellant Bank before us are expected to exercise finer sense and sensibility in their litigation policy, as compared to an individual litigant.
3. The Punjab National Bank (hereinafter referred to as ‘the Secured Creditor’) has preferred these two Letters Patent Appeals under Clause 15 of the Letters Patent assailing the correctness of the judgment and order dated 14.11.2019 passed by the learned Single Judge in two connected Special Civil Application Nos.19918 of 2019 and 19920 of 2019 whereby the learned Single Judge dismissed both the writ petitions by a common judgment.
4. As both the appeals have more or less similar facts and identical legal issues, except that the Borrowers in the two cases are different, the same are taken up together just as before the learned Single Judge. The respondent companies are the Borrowers of the appellant Bank-the Secured Creditor and had taken credit facilities as also term loans against securities which included hypothecation of plant and machinery, stock and book debts, mortgage of factory land and building and other immovable properties belonging to the promoters. These loans were taken some time in the year 2010 to 2013. We are not going into the facts as they are more or less admitted insofar as the borrowings are concerned and furnishing of the securities. There is also reference to certain correspondence regarding an issue relating to rate of interest. This is also apparent from the judgment of the learned Single Judge.
5. At some stage, the Borrowers defaulted in repayment of the loans, as a result of which the Secured Creditor classified the accounts of the Borrowers as Non Performing Accounts. Subsequently, the Secured Creditor issued demand notice dated 29.12.2014 under Section 13 (2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “the SARFAESI Act”). The Borrowers submitted objections/representation under Section 13(3A) of the SARFAESI Act against the notice under Section 13(2). However, the objection/representation of the Borrowers were not found to be satisfactory. Accordingly the Secured Creditor called upon the Borrowers to deliver possession under Section 13(4) of the SARFAESI Act. Further the Secured Creditor applied under Section 14 of the SARFAESI Act which was favourably decided.
6. In the meantime, the Borrowers approached the Debt Recovery Tribunal by way of Securitization Application registered as Securitisation Application Nos.47 and 48 of 2015 under Section 17 of the SARFAESI Act assailing the notice under Section 13(2), 13(4) and the action taken under Section 14 on various grounds. These applications were responded by the Secured Creditor and pleadings were exchanged.
7. The Debt Recovery Tribunal vide judgment and order dated 22.06.2017 set aside the demand notice under Section 13(2) of the SARFAESI Act and all consequential proceedings and further directed the Secured Creditor to restore the possession with the liberty to proceed afresh in accordance to law. The finding of the Tribunal was that the notice was not in accordance with the statutory provision provided in Section 13(3) of the SARFAESI Act as it did not contain the details of the amount due and also the correct details of the secured assets. It would be worthwhile to quote paragraphs 9 and 17 to 19 of the Tribunal’s judgment which read as follows:-
“9. Respondent bank issued demand notice dated 29.12.2014 under Section 13(2) of SARFAESI Act 2002 for an amount of Rs.6,44,18,748/- outstanding dated 22.06.2017 set aside the demand notice under Section 13(2) of the SARFAESI Act and all consequential proceedings and further directed the Secured Creditor to restore the possession with the liberty to proceed afresh in accordance to law. The finding of the Tribunal was that the notice was not in accordance with the statutory provision provided in Section 13(3) of the SARFAESI Act as it did not contain the details of the amount due and also the correct details of the secured assets. It would be worthwhile to quote paragraphs 9 and 17 to 19 of the Tribunal’s judgment which read as follows:- in Cash Credit Limit, an amount of Rs.36,12,391/-outstanding in Term Loan-I Account and an amount of Rs.77,38,309/- outstanding in Term Loan-II Account. Thus respondent Bank has claimed a total amount of Rs.7,57,69,448/- outstanding as on 30.11.2014. As per Demand Notice, account has been classified as Non-Performing Asset on 27th December, 2014 as per guidelines issued by Reserve Bank of India. Respondent bank has placed on record copy of account pertaining to each account. As per Demand Notice, the contractual rate of interest is claimed from 01.12.2014 until payment in full is made within a period of 60 days. However, Demand Notice is silent regarding rate of interest charged in each of the accounts. The Demand Notice only mention regarding facility advanced, limit sanctioned and balance outstanding as on 30.11.2014. However, rate of interest charged in the Cash Credit account from 01.01.2014 to 30.06.2014 is 14.5% p.a. with monthly rests. The rate of interest charged from 1st July, 2014 to 30th November, 2014 is 13.75% p.a. with monthly rests. Applicants have placed on record copy of sanction letter dated 4th February, 2013 wherein interest agreed by the applicants by acceptance of sanction letter for Cash Credit limit is base rate plus 4.25% subject to change from time to time as per RBI/HO guidelines and credit risk rating. Applicants have also agreed to pay penal interest @ 2% p.a. Authorized Officer is bound to give full details of amount to recovered and secured asset as per mandatory provision of Section 13(3) of the SARFAESI Act 2002. Respondent bank is not entitled to compound penal interest. However conduct of account reveals that penal interest is also charged from time to time and compounded on monthly basis contrary to guidelines issued by Reserve Bank of India and law laid down by Hon’ble Apex Court in case of Central Bank of India versus Ravindra and others.
**** ***** **** *****
17. Therefore, in view of aforesaid facts and law applicable thereon, there is no necessity to give details regarding bifurcation of interest, etc. in the Demand Notice. However, Authorized Officer is bound to give the details of the amount payable by the borrower as well as details of secured asset. The details include loan sanctioned or disbursed to the borrower, rate of interest charged and amount outstanding as on date mentioned in the Demand Notice. In the present case, the Authorized Officer has given only amount sanctioned and payable by the borrower. He has not provided rate of interest at which the amount has been claimed prior to 01.12.2014. The respondent Bank has charged penal interest and capitalized the same time and again on monthly basis. Authorized Officer was having opportunity to explain the details while deciding objection of the applicant and to assure applicants that amount inflated due to compounding penal interest will be excluded. But he has failed to avail opportunity to justify his action on the objection raised by the applicant. The details of secured asset are not as per mortgage deed no.489 dated 07.02.2013. Therefore, Authorized Officer has failed to comply mandatory provision of Section 13(3) of the SARFAESI Act 2002. Therefore, Demand Notice dated 2912.2014 is not sustainable at law and same is hereby quashed and set aside.
18. Since Demand Notice has been set aside as above, further action of respondent Bank consequent upon Demand Notice dated 29th December, 2014 is also quashed and set aside. It is settled legal proposition that if initial action is not in consonance with law, the subsequent proceedings would not sanctify the same. In such a fact situation, the legal maxim ‘sublato fundamento credit opus’ is applicable, meaning thereby in case a foundation is removed, the superstructure automatically falls.
19. Therefore, in view of aforesaid observation of mine, Securitization Application is allowed with no order as to costs. Respondent Bank is directed to restore the possession of the property in question. Respondent Bank is at liberty to proceed afresh under the provisions of SARFAESI Act 2002 in accordance with law. However respondent bank shall before taking action under provision of SARFAESI Act 2002 qua flat No.5B-502, Brij Ratan Apartment, Parle Point Surat shall get rectification of mortgage deed no.489 dated 07.02.2013.”
8. Further, according to the Secured Creditor, an application was moved before the Debt Recovery Tribunal for granting stay of the operation of the judgment and order dated 22.06.2017 upon which the Debt Recovery Tribunal is said to have orally stayed the operation of the judgment for 4 weeks. In the meantime, according to the appellant Secured Creditor, the Borrowers re-entered into their properties but at a later stage, the Borrowers stated before the Debt Recovery Tribunal that the possession was still with the Secured Creditor.
9. The Secured Creditor preferred two appeals before the Debt Recovery Appellate Tribunal on 18.07.2017 registered as Securitisation Appeal Nos. 130 and 131 of 2017. The Secured Creditor in the meantime had filed an application for contempt before the Debt Recovery Tribunal registered as Misc. Application No.44 of 2017 in Securitisation Application No.47 of 2015. During its pendency, the Secured Creditor preferred Special Civil Application No.14741 of 2017 before this Court. In the said petition, the proceedings before the Debt Recovery Tribunal and the Debt Recovery Appellate Tribunal were stayed by this Court vide order dated 08.08.2017. Later on, vide order dated 24.06.2019, the learned Single Judge disposed of Special Civil Application No.14741 of 2017 with a direction to the Debt Recovery Appellate Tribunal to proceed to decide the Securitization Appeal on or before 31.10.2019 and in the meantime, the contempt proceedings before the Debt Recovery Tribunal would remain stayed.
10. The Debt Recovery Appellate Tribunal, Mumbai, vide judgment and order dated 23.08.2019 dismissed both the appeals of the Secured Creditor. The findings recorded by the Appellate Tribunal and the observations made are recorded in paragraph 4 of the judgment in Appeal No.130 of 2017. It is relevant to state here that similar observations are recorded in paragraph 4 of the judgment in Appeal No.131 of 2017. The Appellate Tribunal made observations against the Bank in paragraph 4 of its judgments, as such, the same is reproduced below:
“4. When the Tribunal below specifically recorded a finding that Bank has not followed Section 13(3) of the SARFAESI Act, the Legal Department of the Bank, before recommending to file Appeal, should have examined the notice dated 29.12.2014 with reference to provisions of SARFAESI Act. If the appellant has issued a fresh 13(2) notice immediately after the disposal of the S.A. rectifying the mistake, by this time other steps could have been completed and the Bank might have realized money by this time.”
11. Aggrieved by the judgment of the Debt Recovery Appellate Tribunal, the Secured Creditor preferred two Special Civil Application Nos.19920 and 19918 of 2019. The learned Single Judge vide common judgment and order dated 14.11.2019 dismissed both these Special Civil Applications, confirming the orders of the Debt Recovery Tribunal and the Debt Recovery Appellate Tribunal. The finding as recorded by the learned Single Judge in paragraph 7.2 is reproduced below :
“7.2 The necessity to give the details of the amount becomes more important because even though the agreements were entered into and may be that the respondent borrower was aware of the rate of interest the respondent borrower was aware of the rate of interest that was needed to be charged, the terms and conditions of the agreements make it abundantly clear that the rate of interest that the base rate are subject to change by the bank from time to time and the revised rate of interest shall accordingly be charged from time to time in the said account. These stands would obviously make it incumbent upon the bank while issuing notice under Section 13(2) of the Act to give details of the amount payable under a notice under Section 13(2). The Tribunal while considering the issue at hand has relied on a few decisions.
12. It is thereafter that the present two appeals have been preferred.
13. We have heard Mr. K.M.Parikh, learned Senior Counsel with Mr. Kuldeep Adesara, learned counsel for the appellant Secured Creditor and Mr. R.S.Sanjanwala, learned Senior Counsel assisted by Mr. Sandip Bhatt, learned counsel for respondent Nos.1 to 5. Both the learned counsel for the parties have agreed that the appeals may be finally heard at the stage of admission itself and as such we have given a very patient hearing to the learned counsel for the parties.
14. Right from the stage of Section 13(2) of the SARFAESI Act and from the stage of opportunity to the Borrowers to file their reply, the Borrowers had specifically stated that the notice under Section 13(2) was defective and invalid as it was not in compliance to the statutory provisions contained in Section 13(3) of the SARFAESI Act. It did not contain the details of the amount payable by the Borrowers as also the details of the secured assets. The Secured Creditor thought it otherwise that the details of the amount payable by the Borrowers mentioned in Section 13(3) of the SARFAESI Act only requires the Secured Creditor to mention one single figure of the total outstanding amount without giving any break up or details of the amount payable in the form of the principal amount outstanding, interest payable on it for different periods whether at flat or floating rates, any penal interest, the amount of costs etc. or any other amount under any other head which would be chargeable from the Borrowers. Even with respect to the details of the secured assets, the Secured Creditor did not care or deem it proper to correct it.
15. The Debt Recovery Tribunal, the Debt Recovery Appellate Tribunal and the learned Single Judge of this Court concurrently and consistently based upon bare perusal of Section 13(3) of the SARFAESI Act as also the law on the point held against the Secured Creditor. The Secured Creditor instead of correcting its mistake as had been pointed out by the Tribunal, the Appellate Tribunal and the learned Single Judge, has now filed the present appeals and has sought to canvass that it was not necessary for the Secured Creditor to provide the breakup of the outstanding amount and mention of one single figure would be due compliance of the provisions under Section 13(3) of the SARFAESI Act. Further, according to the appellant, Secured Creditor, the details of secured asset are also correct.
16. Mr. Parikh, the learned Senior Counsel made elaborate submissions on the point beginning from the enforcement of the SARFAESI Act, the object and purpose of bringing out the said legislation, the scheme of the Act. After referring to the complete scheme of the Act, the submission of Mr. Parikh, the learned Senior Counsel is that the only requirement under Section 13(3) of the SARFAESI Act is of providing the amount payable by the borrower and the details of the secured assets intended to be enforced. There is no other mandatory requirement to be incorporated in a notice under Section 13(3).
17. It was next submitted by Mr. Parikh that under Section 17 of the SARFAESI Act, the Debt Recovery Tribunal could not test the correctness or validity of a notice under Section 13(2) of the SARFAESI Act. According to Mr. Parikh, it is only after an order under Section 13(4) or 14 of the SARFAESI Act is passed that Section 17 comes into play and the Tribunal could only examine the validity of the action taken under Section 13(4) or Section 14 of the SARFAESI Act. According to Mr. Parikh, the Tribunal exceeded its power vested under Section 17 and as such the impugned order passed by the Tribunal as affirmed by the Appellate Tribunal and the learned Single Judge are untenable in law and requires to be set aside.
18. Although Mr. Parikh in his written submission has given detailed arguments running into 15 pages, but the substance of the arguments is only what is recorded above.
Further reliance is placed upon the following decisions by the learned Senior Counsel Mr. Parikh :
(i) ITC Limited vs. Blue Coast Hotels Limited and others, reported in (2018) 15 SCC 99.
(ii) Vasu P. Shetty vs. M/s. Hotel Vandana Palace and others, reported in (2014) 5 SCC 660.
(iii) Tirupati Storage and Allied Private Limited vs. The United Commercial Bank, Kolkata, reported in 2012 (4) PLJR 748.
(iv) Maradia Chemicals Limited vs. Union of India and others, reported in (2004) 4 SCC 311.
(v) United Bank of India vs. Satyawati Tondon and others, reported in (2010) 8 SCC 110.
(vi) Authorized Officer, Indian Overseas Bank and others vs. Ashok Saw Mill, reported in (2009) 8 SCC 366.
(vii) Kanaiyalal Lalchand Sachdev vs. State of Maharashtra, reported in (2011) 2 SCC 782.
With reference to various case-laws detailed herein above, having gone through each of them we may say with respect that they have no application in the facts and circumstances of the present case and the legal issues relevant for the present proceedings.
19. Mr. Parikh in his written submission has also referred to in detail regarding the One Time Settlement offered, the possession having been taken by the Secured Creditor after the order under Section 14 of the SARFAESI Act was passed, thereafter the Borrowers having re-entered into possession and thereby committing contempt for which separate proceedings were being initiated and about the ownership of one of the properties mortgaged. In our considered opinion, all these facts are not relevant for deciding the present controversy and they pale into insignificance and become irrelevant once the Debt Recovery Tribunal’s order for setting aside the notice under Section 13(2) of the SARFAESI Act and further directing the Secured Creditor to restore the possession of the property to the Borrowers having remained unaltered by the Appellate Tribunal and the learned Single Judge.
20. On the other hand, Mr. Sanjanwala, the learned Senior Counsel for the Borrowers submitted that the orders passed by the Tribunal, the Appellate Tribunal and the learned Single Judge are just, valid and proper. They are in accordance to the statutory provisions of Section 13 and its sub-sections of the SARFAESI Act. It is also submitted that there was no other view possible except the view taken by the learned Single Judge, the Tribunal and the Appellate Tribunal.
21. Sanjanwala further submitted that the Debt Recovery Tribunal had given opportunity to the Secured Creditor to issue fresh notice in accordance to law as far back as in June, 2017, but the Secured Creditor taking a stringent stand which is untenable in law has been dragging the Borrowers into unnecessary litigation right upto this Court. This being the fourth round, it does not at all appear to be a logical and reasonable action on the part of a nationalized bank, the Secured Creditor.
22. Shri Sanjanwala further submitted that the Secured Creditor has lost almost three years litigating before different forums to defend its notice which is at the face of it invalid. According to him, it is the Secured Creditor alone which can answer this question but since the Borrowers have been successful in all the three innings, these appeals which themselves have limited scope, deserve to be dismissed with costs.
23. Sanjanwala has placed reliance not only on the judgments which have been relied upon by the learned Single Judge but has placed reliance upon the judgment of this Court dated 17.01.2019 passed in Special Civil Application No.690 of 2019 between Priyesh Agro Industries and others vs. Union Bank of India and others. Mr. Sanjanwala has further placed reliance upon the order passed by a Division Bench of this Court dated 19.02.2019 passed in Letters Patent Appeal No.422 of 2019 preferred against the judgment of the learned Single Judge dated 17.01.2019, which was allowed to be withdrawn by the appellant.
24. In view of the background and the facts and circumstances of the case as recorded above, there are two points for consideration. Firstly the interpretation of the words “details of the amount payable by the borrower and the secured assets intended to be enforced” mentioned in sub-section (3) of Section 13 of the SARFAESI Act and secondly whether the Debt Recovery Tribunal under Section 17 of the SARFAESI Act could test the validity of notice under Section 13(2) of the SARFAESI Act.
FIRST POINT : DETAILS TO BE MENTIONED [SECTION 13(3) ]
25. The notice dated 29.12.2014 under Section 13(2) issued by the appellant bank is reproduced below:
“Date : 29 December 2014
By Reg : AD
To,
