2017 (10) TMI 1233 - HC - Indian Laws

Court upholds bank actions under SARFAESI & RDDB Acts, dismisses RBI guideline violation claims, denies property release, imposes costs.

The court upheld the respondent-bank's actions under the SARFAESI Act and RDDB Act, allowing simultaneous pursuit of remedies under both Acts. It ... Recourse to the provisions of SARFAESI Act - execute the recovery certificate issued by the Debts Recovery - validity of One Time Settlement (OTS) - release the mortgaged property in proportion to the debt repaid by the petitioners - secured creditor disabled from continuing to take action under the SARFAESI ACT merelry because it had later filled an application under sec 19(1)of the RDDB ACT for recovery of its dues? - Held that:- If the bank/financial institution had already initiated action under the SARFAESI Act before it filed an application under Section 19(1) of the RDDB Act, it would make no sense for it to withdraw its application under Section 19(1) of the RDDB Act to pursue its remedy under the SARFAESI Act which it had initiated earlier, as it can simultaneously pursue both its remedies under the RDDB Act and the SARFAESI Act. Nothing prevents a bank/financial institution from continuing with the proceedings initiated by it earlier under the SARFAESI Act, even if it has subsequently invoked the jurisdiction of the DRT under Section 19(1) of the RDDB Act. This contention of bar of jurisdiction under the SARFAESI Act, merely because a secured creditor has instituted proceedings under the RDDB Act after having initiated proceedings under the SARFAESI Act earlier, does not merit acceptance. Respondent bank violaton to RBI guidelined regarding extension of the one time settlment schme - As banks deal with public funds, waiver of even a part of the principal debt would endanger the financial viability of these banks. It would also put to risk the hard earned money of small depositors who park their life savings in these institutions, to ensure safety and security of their deposits, even if the interest offered thereon is far lower than in other forms of investment. We wish to say no more, as the petitioners have failed even to adhere to the OTS offered by the 2nd respondent-bank which is now seeking to recover the entire amount due to it from the petitioners herein. Failure of the 2ND respondent bank to show title deeds to the petitioner borrower - The respondent-bank has pointed out, in our opinion rightly, that, since a decree was passed by the DRT and recovery proceedings were pending before the Recovery Officer, they could not withdraw the original documents from the DRT at that juncture. The petitioners have not even stated, in their writ affidavits, why they chose not to submit an application seeking permission of the DRT to have the title deeds inspected by the prospective buyers. On the other hand, they have specifically asserted in the writ affidavits that no person would be willing to go to the DRT for inspection of the original documents for fear of buying properties under litigation. It is evident, therefore, that no prospective buyer came forward to inspect the title deeds in the custody of the DRT. The ruse of a prospective buyer coming forward to purchase the property, and the 2nd respondent being blamed for not showing the documents, is only to avoid sale, of their mortgaged immovable properties, by the 2nd respondent-bank for recovery of its dues. Respondent bank obligation to release the mortgaged properties proportionate to the repayment of the debt by the petitioner - petitioners have chosen not to pursue this request for, in their letter dated 03.05.2017, they have sought for release of the mortgaged securities only on payment of the OTS amount of ₹ 10.50 Crores, and have not requested proportionate release of their properties on part payment of the OTS amount. Despite the respondent-bank’s request that they should deposit ₹ 10.50 Crores in a third party no lien account to show their bonafides, (for the said amount to be appropriated towards their loan in case their proposal was accepted and, in case the proposal was not accepted, for return of the said sum of ₹ 10.50 Crores to them), the petitioners have not taken up the offer of the respondent-bank to pay the said amount; and, under the protection of the interim order dated 23.08.2016, (which precluded the respondent-bank from taking coercive steps for recovery of the balance amount due from the petitioners account), have chosen not to pay even a single rupee towards the amounts due from them to the respondent bank. It is evident, therefore, that there are no bonafides in these Writ Petitions, and the petitioners are merely seeking to drag on proceedings and thwart all attempts of the respondent-bank to recover the amounts due to it. We see no reason to accede to the petitioners request for grant of two months time to pay the OTS amount of ₹ 10.5 crores. It is because of the petitioners failure to adhere to the repayment schedule, stipulated by the respondent bank and the DRT, initially by 31.03.2016 and later by 30.06.2016, was the bank constrained to cancel the OTS offer, made by them earlier on 19.01.2016, vide their letter dated 08.08.2016. As noted hereinabove after the OTS offer dated 19.01.2016, for payment of 11.51 crores (12.71 crores minus 1.20 crores paid by them), the petitioners did not pay any amount apart from ₹ 10 lakhs on 15.05.2016 that too only because the DRT had, by its order in I.A. No. 206 and 207 of 2016 in SA No.252 of 2015 dated 12.05.2016, directed them to do so. For the past more than 16 months (i.e., from 15.05.2016 till date), the petitioners have not paid a single rupee in discharge of the debt due to the respondent-bank, and their request for grant of further time of two months is only to avoid sale of the secured assets without having to repay the debt. As against the OTS offer of ₹ 12.71 Crores, the petitioners have paid only ₹ 1.30 Crores and, even in terms of the said OTS offer, they were still due ₹ 11.41 Crores to the respondent-bank. The repeated indulgence shown to them by the DRT has, evidently, emboldened the petitioners to reduce the OTS offer to ₹ 9.35 Crores, and to subsequently marginally increase it to ₹ 10.50 Crores as is evident from their letter dated 03.05.2017, though the balance amount due, even in terms of the earlier OTS offer dated 19.01.2016, is ₹ 11.41 Crores. The petitioners have successfully thwarted all legitimate attempts of the respondentbank to recover its dues. It is not even contended before us, by the petitioners herein, that they have identifiable buyers ready and willing to purchase the secured assets, nor have they furnished any information of the price which the so called prospective buyers are willing to pay for the mortgaged properties. The present Writ Petitions are a last ditch effort to prevent the respondent-bank from putting the subject properties to sale for recovery of its dues. Issues Involved:1. Legality of the respondent-bank's actions under the SARFAESI Act and RDDB Act.2. Alleged violation of RBI guidelines regarding the One-Time Settlement (OTS) scheme.3. Obligation of the respondent-bank to release mortgaged properties proportionate to repayment.4. Failure to show title deeds to the petitioner-borrower.5. Petitioners' request to sell properties by private treaty.6. Validity of the auction price set by the respondent-bank.7. Repeated efforts by the petitioners to thwart the respondent-bank's recovery actions.Issue-wise Analysis:I. Legality of the Respondent-Bank’s Actions under the SARFAESI Act and RDDB Act:The court examined whether the respondent-bank could continue actions under the SARFAESI Act after filing an application under the RDDB Act. Section 13(10) of the SARFAESI Act allows a secured creditor to file for recovery of the balance amount from the borrower if the sale proceeds are insufficient. Section 37 of the SARFAESI Act states that its provisions are in addition to, and not in derogation of, the RDDB Act. The court concluded that the bank could simultaneously pursue remedies under both Acts, as they are not inconsistent. The doctrine of election does not apply here because the remedies under the SARFAESI Act and the RDDB Act are not repugnant or inconsistent. The court held that the bank is not precluded from continuing its action under the SARFAESI Act merely because it filed an application under the RDDB Act later.II. Alleged Violation of RBI Guidelines Regarding the OTS Scheme:The petitioners claimed that the respondent-bank violated RBI guidelines on OTS schemes. The court noted that the RBI guidelines are binding on public sector banks, and the DRT has the jurisdiction to enforce these guidelines. However, the petitioners did not provide evidence that the respondent-bank failed to publicize its OTS scheme as required by the RBI. The court found that the petitioners had already taken advantage of the OTS scheme offered by the bank and failed to adhere to the conditions. Therefore, the petitioners were not entitled to a mandamus directing the bank to extend OTS benefits despite their non-compliance.III. Obligation of the Respondent-Bank to Release Mortgaged Properties Proportionate to Repayment:The court examined the petitioners' request for the bank to release mortgaged properties proportionate to their repayment. The bank had earlier declined this request, and the court held that it is not for the court to determine whether the bank should release the properties proportionately. The petitioners had not pursued this request in their subsequent communications with the bank. The court noted that the petitioners had failed to pay any amount towards their debt since May 2016 and were merely seeking to delay the recovery process.IV. Failure to Show Title Deeds to the Petitioner-Borrower:The petitioners argued that the bank's failure to show the title deeds, which were in the custody of the DRT, was fatal. The court noted that the petitioners could have applied to the DRT for permission to inspect the title deeds but chose not to do so. The court found that the petitioners' claim that no buyer would inspect the deeds at the DRT was an excuse to avoid the sale of their properties.V. Petitioners' Request to Sell Properties by Private Treaty:The court examined the petitioners' request to sell the properties by private treaty. Section 13(8) of the SARFAESI Act, after its amendment, allows the bank to tender the secured asset for sale by private treaty but does not obligate it to do so. The court found that the petitioners had not shown that any buyer was willing to purchase the properties at a higher price than the reserve price set by the bank. The court held that the bank was not obligated to release the properties piecemeal based on partial payments.VI. Validity of the Auction Price Set by the Respondent-Bank:The petitioners contended that the auction price set by the bank was abysmally low. The court found that if the petitioners believed the price was too low, they could have found a buyer willing to pay a higher price or participated in the auction themselves. The court rejected this contention, noting that the petitioners had not provided evidence of a higher offer.VII. Repeated Efforts by the Petitioners to Thwart the Respondent-Bank’s Recovery Actions:The court noted that the petitioners had repeatedly thwarted the bank's efforts to recover its dues by approaching the DRT and the court on various grounds. The petitioners had not paid any amount towards their debt since May 2016 and had reduced their OTS offer despite owing a substantial amount. The court found that the petitioners' actions lacked bona fides and were intended to delay the recovery process.Conclusion:The court dismissed the writ petitions, finding them devoid of merit. The court also imposed exemplary costs of Rs. 25,000 on each petitioner, to be paid to the respondent-bank within four weeks. The court noted that the petitioners had repeatedly obstructed the bank's recovery efforts and had not shown any bona fides in their actions.