HC Kerala (03.01.2022)) in Annam Steels (P) Ltd. & Ors. Vs. Canara Bank & Anr. [WP(C) No. 21892 of 2021] held that;
When the fundamental right to have access to justice is denied, due to the absence of Presiding Officers of the forum created under the statute, the aggrieved are entitled to knock at the doors of this Court under Article 226 or 227 of the Constitution of India.
Therefore, on an appreciation of the various statutory provisions, this Court is of the view that once the DRT quantifies the debt due from the borrower, on the basis of an application under section 19 of the RDB Act, the bank is not entitled to seek enforcement of the security interest for any amount more than what is quantified.
Excerpts of the Order;
Petitioners had borrowed from a consortium of two banks and created separate security interests favouring those banks. The steps initiated to enforce the security interest are under challenge in this writ petition filed under Article 226 of the Constitution of India.
# 2. When petitioners raised the question of the authority of the banks to enforce the security interest in the manner proceeded with, respondents questioned the maintainability of the writ petition under Article 226 of the Constitution of India. Both questions raise issues of significance.
# 3. The issues arise from a loan granted by a consortium of two banks – the Canara Bank and the Punjab National Bank, to the first petitioner. Though the initial sanction for the loan was Rs.180 crores, it was enhanced to Rs.200 crores and later pruned down to Rs.190 crores. The first petitioner thus borrowed an amount of Rs.190 crores from the respondents.
# 4. Subsequently, when respondents noticed diversion of transactions through other banks, contrary to the agreements, notices were issued reminding the defaults. Thereafter, at the request of the petitioners, restructuring of the loan was carried out. Later, when the amounts fell in arrears, proceedings were initiated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, ‘the Securitisation Act’) by issuing two separate notices under section 13(2) of the Act. Accordingly, the Canara Bank issued notice dated 23.12.2015, seeking to recover an amount of Rs.67,88,88,048/- along with interest at 16.65%, while the Punjab National Bank issued notice dated 17.11.2015, demanding an amount of Rs.78,23,69,917/- along with interest at the contracted rate.
# 5. After initiating proceedings under the Securitisation Act separately, the consortium of banks preferred an original application on 05.08.2016 before the Debts Recovery Tribunal (for short, ‘the DRT’) as O.A. No.143 of 2017. The application was later renumbered as T.A. No.44 of 2017. Through the original application, the consortium of banks sought to recover the amounts quantified therein from the defendants, who are the petitioners in this writ petition. An aggregate amount of Rs.163,89,66,756.54 was sought to be recovered as on 31.07.2016, of which Rs.74,65,52,816/- with future interest at 14.65% was claimed by the Canara Bank while Rs.89,24,13,940.55 with future interest at 14.60% was claimed by the Punjab National Bank.
# 6. In the meantime, petitioners challenged the steps initiated under section 14 of the Securitisation Act before the DRT by filing S.A. No.111 of 2017, which was disposed of by Final Order dated 27.11.2018. While disposing S.A. No.111 of 2017, the Tribunal held that the initiation/continuance of further proceedings under the Securitisation Act will be subject to the outcome of T.A. No.44 of 2017. Thus, the proceedings under section 14 of the Securitisation Act were made subject to the outcome of the original application pending before the DRT.
# 7. Thereafter, the original application before the DRT was disposed of by judgment dated 28.09.2020. The Tribunal allowed the original application and directed the defendants to pay to the consortium of banks Rs.163,89,66,756.54 with pendente lite and future interest at 14% per annum, after deducting Rs.35,91,72,323/- received as compensation awarded under the Land Acquisition Act for the acquisition by the Government of one of the properties, over which security interest was created. The amount received as compensation was kept in a ‘no lien’ account by the banks.
# 8. The present writ petition revolves around the issue as to whether the deduction directed by the DRT in T.A. No.44 of 2017 initiated at the behest of the consortium of banks necessitates fresh securitisation proceedings from the stage of section 13(2) itself or whether the banks are entitled to continue the securitisation proceedings from the stage at which the order in S.A. No.111 of 2017 was rendered. Petitioners allege that, due to the deduction directed by the Tribunal in the judgment in T.A. No.44 of 2017, the proceedings under the Securitisation Act ought to be initiated afresh – by issuing fresh notice under section 13(2) of the Securitisation Act.
# 9. A counter affidavit was filed by the respondents stating that the challenge cannot be entertained by this Court since the remedy available to the petitioners was before the DRT and also that the intention of the petitioners is only to drag the recovery proceedings. It was further averred that the total valuation of the security asset was only around Rs.20.77 crores while the petitioners were deriving a monthly income of Rs.10,00,000/- from the tenants and petitioners were not paying any amounts to clear the loan liabilities. It was further stated that separate notices issued by the banks under section 13(2) did not suffer from any legal infirmity and that the order in S.A. No.111 of 2017, produced as Ext.P6, was binding upon the petitioners.
# 10. Respondents further pleaded that, after the judgment in T.A. No.44 of 2017 as per Ext.P7 judgment, in the light of the Final Order in S.A No.111 of 2017, the respondents were entitled to continue the securitisation proceedings and that the amount received by the defendants subsequently, by way of compensation for acquisition of one of the secured assets, does not render the notices issued under section 13(2) as redundant. On the other hand, according to the respondents, all that is required, after the final order of the DRT, was to quantify the debt after carrying out the arithmetical changes as directed while initiating/continuing the proceedings under section 14 of the Securitisation Act before the Magistrate, which was in fact done.
# 11. I have heard Sri..S.Easwaran, learned counsel for the petitioners as well as Sri. C.Ajith Kumar, learned Standing Counsel for the respondents.
# 12. Adv.S.Easwaran contended that once the debt due to the respondents got crystallised by virtue of the decree in T.A. No.44 of 2017, the respondents cannot proceed with the recovery of the amounts under the original contract and that the demand notice issued under section 13(2) of the Act paled into insignificance. The direction to reduce the interest from 16.6% with monthly rests to 14% as ordered by the DRT, rendered the notice issued under section 13(2) of the Securitisation Act redundant. It was also argued that, since the definition of the word ‘debt’ includes a decree, there must be a fresh demand under section 13(2) of the Securitisation Act to enable the respondents to continue the proceedings under the Securitisation Act. According to Adv.Easwaran, the non-adjudicatory measures contemplated under section 14 of the Securitisation Act cannot ignore the crystallisation of the debt under the orders of the DRT and therefore, the demand notices issued prior to the crystallisation of the debt lost its sanctity. In support of his contentions, the learned Counsel relied upon the decisions in Income Tax Officer, Kolar Circle, Kolar and Another v. Seghu Buchiah Setty (AIR 1964 SC 1473), Kanhaiya Lal v. State Bank of India and Others (AIR 2008 Patna 153), M/s.Ace Media Advertisers Pvt. Ltd. and Others v. Bank of Baroda and Others (AIR 2009 All. 120), N.B.Gurudeva v. State Bank of Mysore (AIR 2011 Kant. 188), and A.P.State Financial Corporation v. M/s.GAR Re Rolling Mills and Another [(1994) 2 SCC 647].
# 13. Adv. Ajith Kumar, on the other hand, argued that the writ petition itself is not maintainable since the remedy of the petitioners is before the DRT by challenging the measures initiated under section 14 of the Securitisation Act and not by way of a writ petition. It was also argued that, after the DRT issued the judgment in T.A. No.44 of 2017, the amount for which securitisation proceedings are being continued is based upon the debt as quantified by DRT and all that was required while proceeding with the measures under section 14 of the Securitisation Act is to submit the affidavit with the necessary quantification contemplated on the basis of the judgment of the DRT. It was further contended that, petitioners are not put to any prejudice and as long as the account remains non-performing, the respondents are entitled to continue with the securitisation proceedings initiated as per the notices issued under section 13(2) of the Securitisation Act in 2015, subject to the quantification done by the DRT. Adv. Ajith Kumar further contended that, petitioners have not paid any amount since 2015 other than that received under the land acquisition compensation, which amount was received only after the notice under section 13(2). The learned counsel relied upon the decisions in Authorised Officer, State Bank of Travancore and Another v. Mathew K.C, [(2018) 3 SCC 85], Transcore v. Union of India and Another [(2008) 1 SCC 125], Commissioner of Income Tax and Others v. Chhabil Dass Agarwal [(2014) 1 SCC 603], and Irene Isabella v. Authorised Officer, State Bank of India, Udagamandalam Branch and Another (AIR 2009 Mad. 3).
# 14. The arguments put forth by the learned Counsel has given rise to two issues that require deliberation by this Court. The two issues are
(i) whether the writ petition is maintainable? and
(ii) whether a fresh notice under section 13(2) of the Securitisation Act is required after adjudication of the debt by the DRT in T.A. No.44 of 2017?
(i)Whether the writ petition is maintainable?
# 15. The writ petition was filed alleging that the DRT at Ernakulam has not been functioning as on the date of filing of the writ petition. The remedy of an aggrieved person against any action initiated under the Securitisation Act is to move the DRT under section 17 of the Securitisation Act. However, from the end of March 2021, one of the Presiding Officers of the Tribunal at Ernakulam was not sitting, while the remaining Presiding Officer resigned on 23.09.2021. Thus, as on the date of filing of this writ petition (11.10.2021), there was no forum for the petitioners to ventilate their grievances.
# 16. Lack of forum to agitate a grievance creates an occasion of denial of access to justice. Access to justice is a fundamental right under the Constitution. An effective adjudicatory mechanism is also a facet of the said fundamental right. (See the decision in Anita Kushwaha and Others v. Pushpa Sudan and Others [(2016) 8 SCC 509)]. When the fundamental right to have access to justice is denied, due to the absence of Presiding Officers of the forum created under the statute, the aggrieved are entitled to knock at the doors of this Court under Article 226 or 227 of the Constitution of India.
# 17. Further, apart from the constitutional right, every aggrieved person have a legal right to challenge the proceedings under section 14 of the Securitisation Act and when the forum is not available, they are entitled to move this Court under Article 226 of the Constitution for enforcement of their legal rights. The decision in Authorised Officer, State Bank of Travancore and Another v. Mathew K.C. [(2018) 3 SCC 85] does not propound an absolute bar in exercising the jurisdiction under Article 226, that too, when the alternative remedy is not functioning or available to the aggrieved.
# 18. In view of the above, this Court is of the considered view that this writ petition is maintainable in the peculiar circumstances prevailing in the State of Kerala.
(ii) Whether a fresh notice under section 13(2) of the Securitisation Act is required after adjudication of the debt by the DRT in T.A. No. 44 of 2017?
# 19. Though the consortium of banks had issued separate notices under section 13(2) of the Act, putting forth separate demands with separate interest rates, they, together, as a consortium, filed the original application, invoking the provisions of the Recovery of Debts and Bankruptcy Act,1993 (for short, ‘RDB Act’). Section 19(1) of the RDB Act, provides for an application to the Tribunal for recovery of any debt.
# 20. The word ‘debt’ is defined in section 2(g) of the RDB Act as follows:
2(g)”debt” means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil Court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or;
# 21. Thus, on a perusal of the aforementioned provisions of the RDB Act, it is clear that the application filed by the consortium of banks before the DRT on 05.08.2016 was to recover the debt due from the petitioners.
# 22. In contrast, under section 13 of the Securitisation Act, proceedings can be initiated for enforcing the security interest without the intervention of the court. As per section 13(2) of the Securitisation Act, when a borrower makes any default in repayment of the secured debt or any instalment thereof, and his account relating to such debt is classified as non-performing, then the secured creditor, by notice in writing, must call upon the borrower to discharge in full his liabilities to the secured creditor.
# 23. The total amount demanded by the banks separately under Section 13(2) of the Act was Rs.163,89,66,756.54. However, when the original application was decided, the Tribunal directed two modifications. The interest payable from the date of filing of the application was reduced from 14.65% to 14% and further directed deduction of Rs.35,91,72,323/- which amount became receivable by the borrower due to the acquisition of one of the properties over which security interest had been created.
# 24. Three words of significance are evident in section 13(2) of the Securitisation Act. They are (i) non-performing asset, (ii) debt, and (iii) liabilities. The word ‘non-performing asset’ is defined in section 2(o) of the Securitisation Act as meaning “an asset or account which has been classified as substandard or doubtful or loss as per the guidelines of the Reserve Bank of India”, while the word ‘debt’ is defined in section 2(ha) as having the same meaning assigned to it in section 2(g) of the RDB Act. The word ‘debt’ is a term of wide import, which includes any liability due from a person in any form, whether payable under a decree or otherwise and which is legally recoverable.
# 25. From an appreciation of the aforementioned provisions in the RDB Act and the Securitisation Act, it can be understood that the word ‘debt’ has the same meaning in both statutes. The said word cannot therefore be interpreted differently. Once an account is declared as nonperforming and when the notice under section 13(2) is issued specifying the amount, the borrower is bound to discharge the entire liability, to overcome the rigour of the Securitisation Act.
# 26. The provision in section 13(2) of the Act is explicit that a partial discharge of the debt specified in section 13(2) notice is not sufficient to discharge the liability of the borrower. A part-payment of the amount, under whatever mode is also not sufficient to discharge the debt due.
# 27. If after issuance of section 13(2) notice, the bank itself initiates proceedings under the RDB Act for recovery of any debt and invites an adjudication on the quantum of debt due to it, they cannot thereafter turn around and proceed to demand or enforce security interest for any amount, more than what is quantified by the Tribunal. Fairness of the lender demands that the bank ought not to be permitted to recover anything more than what has already been quantified by the Tribunal. Therefore, on an appreciation of the various statutory provisions, this Court is of the view that once the DRT quantifies the debt due from the borrower, on the basis of an application under section 19 of the RDB Act, the bank is not entitled to seek enforcement of the security interest for any amount more than what is quantified.
# 28. In Mardia Chemicals Ltd. v. Union of India [(2004) 4 SCC 311], referring to instances when the quantum of amount due is disputed, it was observed that “the question of difference in amount may be kept open and got decided before the sale of property”.
# 29. In this context, the decision in Transcore v. Union of India and Another [(2008) 1 SCC 125] assumes relevance. While finding that there is no repugnancy nor inconsistency between the two remedies under the RDB Act and the Securitisation Act, the Supreme Court observed that “Together they constitute one remedy and, therefore, the doctrine of election does not apply.”
# 30. Hence, the respondents cannot proceed to recover any amount more than what has been quantified by the Tribunal in T.A No. 44 of 2017.
# 31. However, the question involved in the present case is on a different tangent. Acquisition of one of the secured assets took place after the notices under section 13(2) of the Securitisation Act were issued. An amount of Rs.35,91,72,323/- received towards compensation for land acquisition was directed by the Tribunal to be deposited in a fixed deposit yielding interest. By order dated 11.06.2020, the amount of compensation along with accrued interest was directed to be appropriated by the Bank. Petitioner contends that, the direction in the final order of the DRT in T.A No.44 of 2017 directing deduction of the amount of compensation received and the reduction in the pendente lite interest must necessarily result in an extinguishment of the existing demand under section 13(2) of the Securitisation Act. I am afraid I cannot agree to the said proposition for more reasons than one.
# 32. First and foremost reason is that, at the time the notice under section 13(2) was issued, no quantification of the debt due had taken place. The amount demanded as on the date of issuance of notice was in terms of the contract and was, in fact, correct, as subsequently found in T.A. No.44 of 2017. The account had admittedly been declared as an NPA, and there was a subsisting debt and liability. The scheme of the Securitisation Act is such that though it is intended, as in the RDB Act, to recover debts due to the Banks or Financial Institutions, the remedy under that statute is treated as an additional remedy for enforcing the security interest through a non-adjudicatory process. The notices under section 13(2) of the Securitisation Act was issued on 17.11.2015 and 27.12.2015 separately, while T.A. No.44 of 2017 was filed on 05.08.2016. At the time the notice was issued, the conditions essential for initiating steps under the said Act was in existence. The subsequent quantification and crystallisation of the debt due, including a reduction in the interest, that too, for the period beyond the date of notice, cannot have a bearing on the notice issued for enforcing the security interest.
# 33. Similarly, the receipt of compensation for acquisition is a subsequent event and cannot affect the validity of the notice. If every payment, subsequent to the notice under section 13(2) of the Securitisation Act is treated as eroding the sanctity of notice under section 13(2) of the Securitisation Act, a shrewd borrower will be able to defeat the provisions of the Act by making a part payment, after the notice under section 13(2) of the Securitisation Act is issued. Acceptance of such a proposition can lead to an anomalous situation at the hands of a crafty borrower. The situation can even lead to a never ending process of recovery. Similarly, every payment by instalments or by any other mode of recovery would warrant a fresh notice to be issued. Such an interpretation will render the entire statute redundant and unworkable.
# 34. Further, by virtue of the subsequent events, there is no novation of contract that has taken place. The borrower, while agreeing to repay the amount due, had also undertaken to keep the margin and the value of the securities hypothecated in such a way that there is no mismatch between the asset-liability in the books of the bank. In fact, it is the mismatch in maintaining the aforesaid asset-liability margin that attracts the provisions of the Securitisation Act. (See the decision in Transcore v. Union of India and Another [(2008) 1 SCC 125] Para 63)
# 35. Coming to the facts of the present case, it is noticed that the amount demanded by the banks separately under Section 13(2) of the Act were Rs.163,89,66,756.54. When the original application was decided, the Tribunal found the Banks entitled to the amount claimed. However, the Tribunal directed two modifications. The first modification related only to the pendente lite interest, while the second related to the deduction of the compensation amount of Rs.35,91,72,323/-, which became payable to the borrower due to the acquisition of one of the secured assets, that too, after the notice under section 13(2) of the Act was issued. Thus, while quantifying the debt, the variance directed by DRT related to matters concerning post notice aspects.
# 36. In this context, it is relevant to observe that, by virtue of final order in S.A. No.111 of 2017 dated 27.11.2018, the Tribunal had directed that the initiation or continuance of the securitisation proceedings will depend upon the final outcome of the original application. On a reading of Ext.P6 order dated 27.11.2018, it is evident that, the said order only meant that the securitisation proceedings must be carried on as per the final order in T.A. No.44 of 2017. In the final order in T.A. No.44 of 2017, the only change, as observed earlier in this judgment, was relating to variance or deduction of amounts, post section 13(2) notices. Thus, the order in S.A. No.111 of 2017 has no significant bearing on the contentions raised.
# 37. The above deliberation leads this Court to conclude that a fresh notice under section 13(2) of the Securitisation Act is not required, after adjudication of the debt by the DRT in T.A. No.44 of 2017, especially since there was no finding in the final order of the DRT, contrary to the claim in the notices issued by the Banks.
Therefore, there is no merit in the writ petition and it is accordingly dismissed.
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