TaxTMI 
TaxTMI 
2009 (12) TMI 528
X X X X Extracts X X X X
X X X X Extracts X X X X
....2) of section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, ('the Act' henceforth). He was called upon to liquidate the liability of Rs. 26,23,999.10 ps. outstanding as of 31st March, 2005 within 60 days from the date of the said notice. However, by 18th August, 2006, the writ petitioner has paid in all a sum of Rs. 27,96,000 to the respondent-bank. He was still found due as of 18th August, 2006, in a sum of little more than Rs. 2.27 lakh. The case of the petitioner is that he has approached the bank to liquidate this remainder of the liability also, but, however, the bank insisted for payment of another Rs. 2 lakh towards the securitisation expenses incurred by it. While the matter stood, thus, the impugned notice has been got published on 21st October, 2007 inviting sealed bids for the sale of the secured asset through tender notice No. 1 of 2007. It is this notice which is called in question in this writ petition. 2. It is contended by Sri G Vidya Sagar, learned counsel for the writ petitioner that the tender notice which has been published as of 21st October, 2007 inviting bids has not bothered to verify as to w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ule 4 of the Security Interest (Enforcement) Rules, 2002, and the guidelines issued by the Reserve Bank of India on the subject, the respondent-bank is legitimate and justified in demanding a sum of Rs. 1,90,000 from the petitioner towards securitisation expenses. 5. It was further stated by the bank that pursuant to the interim directions granted by this court on 7th November, 2007, the writ petitioner has also paid a further amount of Rs. one lakh. 6. Pursuant to our further directions issued on 13th October, 2009, the writ petitioner has since deposited a further sum of Rs. 2,11,000 to the respondent-bank. Thus, the outstanding liability of Rs. 2.96 lakh was also cleared and an additional sum of Rs. 15,000 to cover the securitisation expenses, was also paid. 7. The only question of importance that is needed to be decided in this writ petition is relating to the quantum of securitisation expenses which the financial institutions are entitled to recover from the borrowers in terms of the provisions contained in the Act. 8. The Act has been ushered in for the purpose of regulating securitisation and reconstruction of financial assets and for enforcing the security interests of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sidered by the secured creditor and only if the secured creditor comes to the conclusion that the objections raised by the borrower are not acceptable or tenable, he was required to communicate within one week of receipt of such representation or objection, the reasons for non-acceptance thereof. Thus, a safety mechanism has been built in for ensuring a recheck of the entire fact situation prevailing on record. Sub-section (4) of section 13 enabled recourse to the measures indicated therein to be adopted by the secured creditor. In the instant case, the impugned tender notification is the one, indicating the action taken by the respondent-bank under clause (a) of sub-section (4) of section 13. After the notice under sub-section (2) of section 13 was delivered on the writ petitioner, the writ petitioner has in fact cleared substantial portion of the debt. He has in fact paid more money Rs. 27.96 lakh, than Rs. 26,23,999.10 ps, claimed as due in the notice issued under sub-section (2) of section 13. When once a borrower pays up in full the liability, as demanded by the notice, the follow up action under sub-section (4) should not have been taken up at all. It would have been a differ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r. Since, it will have a bearing upon the controversy at issue, we prefer to quote it: 13. Enforcement of security interest. -.... (7) Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests. A mere look at the provision contained under sub-section (7) would indicate that all such costs, charges and expenses which have been properly incurred by the secured creditor and any other expenses incidental thereto to be recovered from the borrower. It is not very difficult to assume that the various measures contemplated by sub-section (4) of section 13 do not necessarily l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bstantial amount has already been charged to the borrower. One can perhaps understand these amounts representing proper expenditure. These expenses have been incurred by the respondent- bank for securing the realisation of the secured asset by way of its sale. Therefore, they can legitimately pass the muster in terms of sub-section (7) of section 13. 10. But what baffled us was the statement made in the counter affidavit that the borrower is liable to pay a further sum of Rs. 1,90,000 for payment to the recovery agent. It was brought to our notice that Sisir & Ravi Associates, chartered accountants, was appointed as enforcement agent of the respondent-bank. They raised a bill in a sum of Rs. 1,96,641 on 15th November, 2007. They have calculated their professional fees at the rate of 5 per cent on Rs. 35,00,213 which came to Rs. 1,75,010. They also claimed additionally service tax at the rate of 12.36 per cent thereon which came to Rs. 21,631. Thus, they raised a bill for the aforesaid amount of Rs. 1,96,641. Firstly, there was no satisfactory explanation as to why this enforcement agent has raised his professional bill on an amount of Rs. 35,00,213. As was already noticed supra, a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... l Reputed Management Consult- ants (Indian and foreign) l Accounting firms (Indian and . foreign) l Firms with international experience in impaired Asset Management/Business Recovery Service l Merchant Banks (Indian and foreign) including SBI Caps l Companies/firms that may be set up by reputed corporates/NBFCs for the purpose in the coming days. Eligible accounts : All written-off accounts with outstandings up to Rs. 25 lakh (including AUCA) All accounts with total outstandings (ledger balance) of Rs. 1 lakh and above in live ledger or otherwise/ NPAs. Functions/ duties : The Recovery Agent will help, assist the bank's officials in the following functional areas related to recovery of advances : l Follow-up with the borrower/ guarantors. l Follow-up of legal cases with the office of the bank's advocate, in consultation with the Bank's officials. l Follow-up of revenue recovery cases with Revenue officials in consultation with the bank's officials (subject to related State Government guidelines, if any). l Follow-up of cases pending before Lok Adalat in consultation with The bank's officials. l Arranging buyers for assets/properties hypothecated/mortgaged to the bank....
X X X X Extracts X X X X
X X X X Extracts X X X X
....For recoveries above Rs. 20 lakh - Rs. 2 lakh plus 5 per cent of the amount recovered in excess of Rs. 2 lakh. (d)In case the recovery exceeds 50 per cent of the assessed value of security, an additional incentive equal to 25 per cent of the above remuneration may be paid. In case the recovery exceeds 75 per cent of the assessed value of security, an additional incentive equal to 50 per cent of the above remuneration [i.e., as per para (ii) above] may be paid. 11. It is clear to our mind that the respondent bank has intended to outsource the services of recovery agents or enforcement agents, as the case may be, as a supplementing measure to the efforts of recovery which the bank officials themselves are required to undertake. In other words, without the bank officials undertaking steps and measures for recovering the securitisation asset, they cannot jump at the option of outsourcing the service of recovery agents or enforcement agents. These agents are essentially chosen for their specialised knowledge. Therefore, it may not be improper to describe them as professionals. The services of professionals can be outsourced as a measure of supplementing to the efforts of the officials....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led with manual skill. Thus, a teacher uses purely intellectual skill while a painter uses both. In any event, they are not engaged in an occupation in which employers and employees cooperate in the production or sale of commodities or arrangement for their production or sale or distribution and their services cannot be described as material services. "Profession" involves the idea of an occupation requiring either purely intellectual skill, or of manual skill controlled, as in painting and sculpture, or surgery, by the intellectual skill of the operator, as distinguished from an occupation, which is substantially the production or sale or arrangement for the production or sale of commodities- According to Rupert M Jackson and John L Powell the occupations which are regarded as professions have four characteristics, viz., (i)the nature of the work which is skilled and specialised and the substantial part is mental rather than manual ; (ii)commitment to moral principles which go beyond the general duty of honesty and a wider duty to community which may transcend the duty to a particular client or patient ; (iii)professional association which regulates admission and seeks to upho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....matter of their professional fee. Rules have been framed regulating it and such fee structure is periodically updated also. The fee chargeable gets decreased with the increase in the value of the claim of the client. In other words, a carefully structured and graded scale is put in place. It never contained as high a flat rate of 10 per cent of the claim. A similar exercise is required to be carried out, even in the matter of payment of commission to these agents. Otherwise, the respondent-banks would outsource the services of recovery agents and enforcement agents without in any manner seeking to effect the recoveries from the borrowers on their own. The respondent-bank cannot draw comfort from the umbrella provided by sub-section (7) of section 13. To our mind, the statute makers have advisedly ensured that properly incurred expenses alone to be recovered from the borrowers. Otherwise, the banks and financial institutions would be patronising a set of favoured few, calling them as recovery agents/enforcement agents, so that the commission paid to them can be conveniently booked to the account of the borrower. A borrower cannot be subjected to an unduly harsh expenditure and, henc....