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TaxTMI 
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2017 (3) TMI 1339
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....l these petitions are heard and decided together. One additional issue raised in Special Civil Application No.11437 of 2014 is that the respondent No.1, which is a securitisation and reconstruction company, has no jurisdiction to take measures under Section 13(4) of the Act to recover Rs. 10 crore independently lent to the petitioners and not part of the financial assets. 2. In Special Civil Application No.10353 of 2014, following prayers are made in para 26:- "(a) This Hon'ble may be pleased to issue a writ of certiorari or any other writ, direction or order in the nature of certiorari declaring that provisions of Section 13(2) and 13(4) do not apply to the petitioner and therefore, the notice dated 13.01.2014 issued by the second Respondent purportedly under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the taking over of symbolic possession of the properties of the petitioner by the Respondent No.2 is illegal, null and void and without any authority of law. (b) That the advertisement dated 03.05.2014 published by the Respondent No.2 in Free Press Journal, Mumbai dated 9.5.2014 be declared to be il....
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....ned by an order of this Hon'ble Court from in any manner taking over possession of the said properties of the Petitioner dealing with the properties of the Petitioners at R.S. No.111/paiki admeasuring about 32647 Sq. Mtrs. of village Vadadala (Devpura) in the sub-registration District Savli, Registration District Vadodara as also its plant and machineries and other movable properties. (e) That pending the admission, hearing and final disposal of this Petition the operation and implementation of the order dated 28.7.2014 of the learned District Magistrate, Vadodara, passed on Application No.E.C./M.A.G./Secu/Vasi 2713 of 2014 be stayed. (f) ..... (g) ....." 4. In Special Civil Application No.15599 of 2016, the petitioners have made following prayer in para 28:- "(a) YOUR LORDSHIPS BE PLEASED to issue a writ of certiorari, or any other writ, direction or order in the nature of certiorari declaring the provisions of Section 13(2) and 13(4) do not apply to the petitioners and therefore, the notice dated 08.06.2016, at Annexure B to this petition issued by the Respondent under the provisions of Section 13(2) of the Securitisation & Reconstruction of Financial Assets and Enforcement ....
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....e of two kinds; i.e. 'borrower-in fact' and 'borrower-in law'. Referring to provisions of Section 13, they submitted that the actions contemplated under Section 13 are against the borrower who had taken financial assistance and not against the guarantor or the mortgagor. Referring also to definition of 'default', they submitted that non-payment of debt is referable to the borrowers who have availed of loan and not to the guarantors and therefore, the provisions of the Act, especially Section 13, would not apply to them. Learned advocate Mr. Gupta raised additional argument that the possession of the property of the petitioner was taken in purported exercise of powers under Section 13(4) of the Act without following the mandatory procedure under Rule 8 of the Security Interest (Enforcement) Rules, 2002 ('the Rules') and therefore, the petitioner is justified to invoke extraordinary jurisdiction of this Court. Learned advocate Mr. Shah also raised additional submission in Special Civil Application No.11437 of 2014 that the respondent is neither a bank nor financial institution but it is a securitisation company which has no jurisdiction to enforce the provisions of Section 13 against....
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....ged under Section 13 could well be taken against such guarantors and mortgagors. In Special Civil Application No.11437 of 2014, learned senior advocate Mr. Soparkar argued that since respondent No.1 is a private company, the petition under Article 226 of the Constitution of India would not be maintainable against it. He submitted that even otherwise, financial assistance of Rs. 10 crore given to the borrower was part of the restructured dues/debt and the respondent company is since a secured creditor within the meaning of definition of secured creditor, it has jurisdiction to take action under Section 13 of the Act. 7. The Court having heard learned advocates for the parties finds that all the petitions are filed after the measure of taking possession of the secured assets of the petitioners is taken under Section 13(4) of the Act. Section 17 of the Act provides for remedy of appeal to any person including the borrower aggrieved by any of the measures referred to in sub-section (4) of Section 13 of the Act taken by secured creditor or his authorized officer. As per sub-section (2) of Section 17, Debts Recovery Tribunal (DRT) has jurisdiction to consider whether any of the measures....
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....cluded from the purview of the Act, it would run counter to the objects intended to be achieved by the legislature. The Statement of objects and reasons reads as under:- The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices, there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of nonperforming assets of banks and financial institutions. Narasimham Committee I and II and A....
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....nce granted by any bank or financial institution, is a borrower within the meaning of 'borrower' under the Act. 12. Sub-Section (1) of Section 13, which provides for enforcement of any security interest created in favour of any secured creditor in accordance with the provisions of the Act, notwithstanding anything contained in Section 69 and 69A of the Transfer of Property Act and without intervention of the Court or the Tribunal, clearly indicates the legislative intent that the Act applies to the guarantor or the mortgagor for recovery of the secured debt by enforcing security interest against them. 13. Sub-section (2) of Section 13 when read with sub-section (3) thereof, it becomes clear that when the borrower, who is under liability to a secured creditor under security agreement makes default in repaying the secured debt or any installment thereof and his account in respect of such debt is classified as NPA, the secured creditor can issue notice to the actual borrower of loan/ financial assistance, who is referred as 'borrower in-fact' by learned advocate Mr. Shah and also to the guarantor/ mortgagor who is referred as 'borrower in-law' by Mr. Shah for discharging liability t....
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....erein- guarantor under Section 13(2) and 13(4) and filed an application under Section 14 of the Act without first initiating action against the borrower, i.e. respondent No.2 therein, for recovery of the outstanding dues, has held and observed in para 42 and 43 as under:- 42. There is another reason why the impugned order should be set aside. If respondent No.1 had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14, then she could have availed remedy by filing an application under Section 17(1). The expression 'any person' used in Section 17(1) is of wide import. It takes within its fold, not only the borrower but also guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective. 43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not ....
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.... Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993). 22. The scope of Section 34 came up for consideration before this Court in Mardia Chemicals Ltd. and this court held as follow: "50. It has also been submitted that an appeal is entertainable before the Debts Recovery Tribunal only after such measures as provided in sub-section (4) of Section 13 are taken and Section 34 bars to entertain any proceeding in respect of a matter which the Debts Recovery Tribunal or the Appellate Tribunal is empowered to determine. Thus before any action or measure is taken under sub-section (4) of Section 13, it is submitted by Mr. Salve, one of the counsel for the respondents that there would be no bar to approach the civil court. Therefore, it cannot be said that no remedy is available to the borrowers. We, however, find that this contention as advanced by Shri Salve is not correct. A full reading of Section 34 shows that ....
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....approach the DRT or the Appellate Tribunal and not the civil court. Civil Court in such circumstances has no jurisdiction to entertain any suit or proceedings in respect of those matters which fall under sub-section (4) of Section 13 of the Securitisation Act because those matters fell within the jurisdiction of the DRT and the Appellate Tribunal. Further, Section 35 says, the Securitisation Act overrides other laws, if they are inconsistent with the provisions of that Act, which takes in Section 9, CPC as well. 25. We are of the view that the civil court jurisdiction is completely barred, so far as the "measure" taken by a secured creditor under sub-section (4) of Section 13 of the Securitisation Act, against which an aggrieved person has a right of appeal before the DRT or the Appellate Tribunal, to determine as to whether there has been any illegality in the "measures" taken. The bank, in the instant case, has proceeded only against secured assets of the borrowers on which no rights of Respondent Nos.6 to 8 have been crystallised, before creating security interest in respect of the secured assets. 18. Learned advocate Mr. Gupta however submitted that in the case of his petitio....
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....ke an application to the DRT having jurisdiction in the matter within 45 days from the date of such measures having taken for the reliefs indicated in sub-section (3) thereof. 36. The intention of the legislature is, therefore, clear that while the banks and financial institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee. ................................................................ 39. We are unable to agree with or accept the submissions made on behalf of the appellants that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under Section 13(4) of the Act. On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of Section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DR....
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....oparkar drew the attention of the Court to the contents of the notice issued under Section 13(2) of the Act to the original borrower and also to the petitioner who is the mortgagor to point out that additional loan of Rs. 10 crore was given to the petitioner for the purpose of restructuring of acquired loans. He also drew the attention of the Court to the affidavit of respondent No.1 to support the stand taken that grant of additional facility to the borrower was a part of restructuring of the dues. He also took the Court to a document at Annexure-R4, annexed with the affidavit-in-reply,which is a communication dated 13.9.2010 addressed to the Chairman of the borrower company, stating that on the terms and conditions agreed between the parties, additional facility was granted as part of restructuring of the dues. Copy of the Annexure referred in the said communication containing the terms and conditions for such additional facility is found placed at page 133. 21. The Court finds that when the stand taken by respondent No.1 is that advancing financial assistance of Rs. 10 crore to the borrower was not independent loan given to the borrower but was part of the restructured loan whi....