DRAT Chennai (09.11.2022) in The Hongkong and Shanghai Banking Corporation Limited, Vs. Mr. Ismath Batcha & Anr. [MA(SA) 8/2017 - MA44/2016 in SA 89/2010 on the file of DRT-I, Chennai)] held that;
From a reading of above provision, it is to be understood that payment of compensation arises where possession was found unauthorised and on account of losing possession, party suffered loss, namely, income on the property.
Once the action of Authorised Officer has been declared to be not in accordance with law and the Authorised officer is directed to return back the asset to the borrower, in those cases only borrower gets the right to claim compensation for the reason that borrower could not enjoy the property during the interregnum period or for losing income over it during that period.
In case of symbolic possession, there cannot be any order for restoration of possession because borrower or a person who is in possession of the property has not lost possession and it is only a paper possession.
Therefore, mere declaration of action of secured creditor not being in accordance with the provisions of SARFAESI Act and the Rules made thereunder is not alone sufficient for making a borrower entitled to a compensation and such a declaration must be followed by a further order of restoration of the secured asset to the borrower.
Excerpts of the order;
# 1. This Appeal is preferred under Section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) against order dated 29.11.2016 of DRT-I, Chennai in MA 44/2016 in SA 89/2010. Brief facts leading to this appeal are as follows.
# 2. Appellant herein initiated proceedings under SARFAESI Act against respondents and those actions were challenged before DRT-I, Chennai by filing SA 89/2010 and Tribunal below allowed the said SA 89/2010 vide its order dated 19.1.2012 by setting aside the measures taken by the appellant herein under Section 13(4) of SARFAESI Act and thereafter respondents herein filed MA 44/2016 claiming compensation to a tune of Rs.1.00 crore and a sum of Rs.5.00 lakhs as costs and that application was resisted by appellant on several grounds contending that the application as filed is not maintainable as there is no dispossession and direction for restoration of possession. Appellant also contended that application claiming compensation is filed beyond the period of limitation as it is filed four years after the order dated 19.1.2012 in SA 89/2010. Appellant also contended that separate application has to be filed under Section 19 of SARFAESI Act for compensation but not by way of Miscellaneous Application. Tribunal below through impugned order overruled the objections of the appellant bank holding that respondents are entitled for compensation as they lost their constitutional right to enjoy the property and directed the appellant herein to pay a sum of Rs.3.00 lakh to each of the respondents, who are the petitioners in MA 44/2016 within 30 days from the date of order. Aggrieved by the said order, present appeal is preferred contending that order of Tribunal below is erroneous and contrary to law. According to the appellant, Tribunal below was pleased to set aside possession notice only on technical grounds and there is no dispossession. According to appellant, restoration of secured asset is a condition precedent for claiming compensation under Section 19 of the SARFAESI Act. According to appellant, interpretation given by Tribunal below is completely erroneous and misplaced and therefore order of Tribunal below is liable to be set aside.
# 3. Both parties filed written arguments and they reiterated the same at the time of oral submissions.
# 4. Though appellant raised many grounds, main and relevant ground, which mainly harped on is whether order for restoration of possession is a condition precedent for claiming compensation, is the issue which requires consideration from this Tribunal.
# 5. Supporting the order of Tribunal below, advocate for respondents vehemently contended that there is no dichotomy between symbolic possession and physical possession as observed by Hon’ble Supreme Court of India, in re, Transcore Vs. Union of India, which Tribunal below has taken into consideration and the objection of appellant bank that dispossession and restoration of possession are sine quo non for awarding compensation is not tenable.
# 6. On the other hand, it is the contention of advocate for appellant that interpretation of the word ‘symbolic possession’ and ‘physical possession’ has to be understood in its literal sense and Tribunal below has completely lost sight of the provisions of Section 19 of SARFAESI Act, which mandates a direction for restoration of possession.
# 7. In the light of contentions and rival contentions of both parties, it may be relevant and necessary to examine Section 19 of SARFAESI Act for better appreciation, which reads as follows:
“19. Right of borrower to receive compensation and costs in certain cases.—
If the Debts Recovery Tribunal or the Court of District Judge, on an application made under section 17 or section 17A or the Appellate Tribunal or the High Court on an appeal preferred under section 18 or section 18A, holds that the possession of secured assets by the secured creditor is not in accordance with the provisions of this Act and rules made thereunder and directs the secured creditors to return such secured assets to the concerned borrowers, such borrower shall be entitled to the payment of such compensation and costs as may be determined by such Tribunal or Court of District Judge or Appellate Tribunal or the High Court referred to in section 18B. “
# 8. From a reading of the above section, it is clear that a right is given to borrower to receive compensation and costs in certain cases. A plain reading of above section also indicates that when Tribunal holds that possession of secured asset by secured creditor is not in accordance with the provisions of SARFAESI Act and the Rules made thereunder and directs the secured creditor to return such secured asset to the borrower or any other aggrieved person, then, that person or borrower shall be entitled to payment of such compensation and costs as may be determined by Tribunal.
# 9. In this context, it may be relevant to examine the application filed by the respondents herein to note on what grounds they claimed compensation. A reading of the application would manifestly indicates that claim of Rs.1.00 crore is to be understood as damages. Claim is quantified into four heads. Under the first head, for harassing Mr. Ismath Batcha and his family members by trying to take physical possession with the help of goondas, compensation is quantified at Rs.25.00 lakhs, for impairment of hearing of second applicant due to noise and din created by appellant is quantified at Rs.25.00 lakhs, for making an attempt to murder and hanging the first petitioner in the office is quantified at Rs.25.00 lakhs and for mental agony and social ostracisation is quantified at Rs.25.00 lakhs, thus totalling to a sum of Rs.1.00 crore.
# 10. Section 19 of SARFAESI Act makes it very clear that right is given to borrower to claim compensation in certain cases which indicates that it is not a general right and only a specified right and that too in certain cases. From a reading of above provision, it is to be understood that payment of compensation arises where possession was found unauthorised and on account of losing possession, party suffered loss, namely, income on the property. The word ‘damage’ and ‘compensation’ though sounds similar, they have distinct meanings. Damages are not always compensated and may be awarded to deter further violation of same nature, whereas compensation is a legal right that one has suffered loss due to lapses committed by some other. In other words, ‘damages’ are for sufferings like mental agony, injury, etc. whereas compensation is purely for loss sustained. If the provision of Section 19 is examined in that context, compensation indicated in the provision has to be understood that it is only to make good of the loss sustained by the borrower or any other person due to acts committed by the secured creditor. Section 19 provides for return of assets besides declaring the measures as illegal. Once the action of Authorised Officer has been declared to be not in accordance with law and the Authorised officer is directed to return back the asset to the borrower, in those cases only borrower gets the right to claim compensation for the reason that borrower could not enjoy the property during the interregnum period or for losing income over it during that period. The dichotomy between symbolic possession and physical possession as focussed by the advocate for respondents with reference to the judgment of Hon’ble Supreme Court of India is in the context of putting the property to sale and the issue before the Apex Court in that case viz., Transcore Vs. Union of India was whether taking physical possession is necessary for putting the property to auction and in that context Hon’ble Supreme Court held that dichotomy between symbolic possession and physical possession does not find place in the SARFAESI Act and therefore even by taking symbolic possession, property can be put to sale. But that analogy cannot be applied here because section 19 makes it very clear that there should be an order for restoration of possession. In case of symbolic possession, there cannot be any order for restoration of possession because borrower or a person who is in possession of the property has not lost possession and it is only a paper possession. But the Tribunal below granted compensation only on the ground that borrower has lost constitutional right to enjoy property, which is not a right given under Section 19 of the Act. As rightly pointed out by advocate for appellant bank, intention of law makers to compensate borrower or a person claiming through a borrow is only against dispossession and while restoring the property, a right is given to claim compensation. Therefore, mere declaration of action of secured creditor not being in accordance with the provisions of SARFAESI Act and the Rules made thereunder is not alone sufficient for making a borrower entitled to a compensation and such a declaration must be followed by a further order of restoration of the secured asset to the borrower. In this case, admittedly, there is no dispossession, as such, order of restoration does not arise. When Section 19 of the Act contemplates happening of two events for claiming compensation, borrower cannot get right only on happening of one event. Here only action of secured creditor is declared as not in accordance with law. But the other requirement of restoration or return of asset to the borrower has not happened because there was no dispossession. Tribunal below completely lost sight of the requirements of Section 19 of the Act and granted compensation on the ground of losing constitutional right to enjoy the property, which is not contemplated under the Section. Further, when compensation is to make good of the loss sustained by the borrower due to dispossession or losing income on it from the period of dispossession till restoration but not for the heads under which respondents claimed in their petition. Therefore, viewed from any angle, order of Tribunal below cannot sustain and in my view, Tribunal below committed grave error in ignoring the essential conditions required for grant of compensation under Section 19 of the SARFAESI Act and also the fact that compensation is not a general right and it is only in certain cases.
# 11. For these reasons, I am of the considered view that impugned order dated 29.11.2016 passed in MA 44/2016 in SA 89/2010 is liable to be set aside as the same cannot sustain and accordingly same is set aside.
# 12. In the result, Appeal MA(SA) 8/2017 is allowed. Impugned order dated 29.11.2016 passed in MA 44/2016 in SA 89/2010 is set aside. Both parties shall bear their own costs. All pending IAs, if any, stand closed.
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