TaxTMI 
TaxTMI 
2018 (3) TMI 932
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....ibhav Mishra, Adv., Mr. Sachin Bajpai, Adv., Mr. E.C. Agrawala, AOR, Mr. Pratap Venugopal, Adv., Ms. Surekha raman, Adv., Mr. Anuj Sarma, Adv., Mr. Aman Shukla, Adv., Ms. Kanika Kalyaiyarasan, Adv., for M/S. K J John And Co, AOR And Mr. Apoorva Bhumesh, AOR, JUDGMENT S. A. BOBDE, J. 1. Leave granted. 2. The auction purchaser ITC Ltd. is before us in the appeals arising out of SLP (C) Nos.10215-10217/2016. The sale of a five star luxury hotel property purchased in a public auction was set aside by an order (Dated 23.03.2016) of the Bombay High Court in favour of the debtor Blue Coast Hotels Ltd. 3. The circumstances under which the auction purchaser purchased the hotel property are as follows:- Industrial Financial Corporation of India (IFCI), [filed appeals arising out of SLP (C) Nos.10196-10198/2016 in this Court], the secured creditor (hereinafter referred to as 'the creditor'), in the capacity of a financial institution entered into a corporate loan agreement (Dated 26.02.2010) with Blue Coast Hotels (hereinafter referred to as 'the debtor') for a sum of Rs. 150 crores. The agreement included a creation of a special mortgage to secure the corporate loan. ....
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.... for the next 60 days. Subsequently, no bids were received and the auction failed. 7. The creditor challenged the interim order passed by the DRT order before Debts Recovery Appellate Tribunal (hereinafter referred to as 'the DRAT'). In the challenge, the Appellate Tribunal directed for the second appeal to be disposed off within a month by the DRT. 8. The DRT disposed off the second appeal and set aside the notice under Section 13(2) (Vide order dated 26. 03.2013) on the ground of non compliance with Section 13(3A) and for issuance of the demand notice jointly for the mortgaged land comprising of agricultural land to which the provisions of the Act did not apply as per Section 31(i) of the Act. 9. The creditor filed an appeal to the order of the DRT (Vide order dated 31.03.2014) in the DRAT which came to be allowed (Vide order dated 10.09.2014) and the validity of the notice issued under Section 13(2) was upheld. Against the order of the DRAT setting aside the order of the DRT, the debtor filed the Writ Petitions leading up to the present SLP, in the High Court. The Auction Sale 10. On 04.09.2013, the creditor published a Notice of Sale by Public Auction in the news....
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.... Court 16. The parties eventually moved the High Court by way of writ petitions in its jurisdiction under Article 226 of the Constitution of India. Three writ petitions were filed:- (i) Writ Petition No. 2698 of 2014 (renumbered as 222 of 2015) was filed on 04.10.2014 by the debtor challenging the order of the DRAT. (Order dated 10.09.2014) (ii) Writ Petition No. 1150 of 2015 was filed on 02.03.2015 by the debtor against the order of handing over possession passed by the District Magistrate. (Order dated 26.02.2015) (iii) Writ Petition No. 2486 of 2015 was filed on 19.03.2015 by the debtor challenging the sale of the secured assets in an auction on 25.02.2015. The writ petitions were filed before the Panaji Bench of the High Court at Goa, though eventually they were heard by the Bombay High Court. The High Court set aside the judgment of the DRT and held the entire proceedings for recovery and sale of the Goa Hotel to be illegal being in violation of the Act. 17. In brief the High Court held that:- (i) The recovery proceedings were a breach of Section 13 (3A) for failure of the creditor to reply to the representation of the debtor and....
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....ection (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within fifteen days of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower: PROVIDED that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A. (4) In case the borrower fails to discharge his liability in full within the period specified in subsection (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the busine....
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....on or objection, the reasons for non-acceptance of the representation or objection, to the borrower.) elaborate on the manner in which the representation of the borrower is required to be dealt with. Section 13 (4) enables any creditor to enforce any security interest without the intervention of a court or tribunal. The procedure prescribed is that after classifying the debt as a non-performing asset, the creditor may, by a notice in writing require the debtor/borrower to discharge his liabilities within 60 days. On receipt of a notice, the borrower may make a representation or raise any objection. The creditor is then bound to consider the representation or objection. If the creditor comes to the conclusion that the representation is not acceptable or tenable, the creditor is required to communicate the reasons for the non-acceptance of the representation/ objection within fifteen days. Where the borrower fails to discharge his liability in full, the creditor may take any of the actions under sub- section (4) which include the taking over of possession of the secured assets et cetera. 21. Rule 3A of the Rules requires the authorized officer who is an officer specified by the Bo....
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.... must also be communicated to the borrower by the secured creditor. It will only be in fulfillment of a requirement of reasonableness and fairness in the dealings of institutional financing which is so important from the point of view of the economy of the country and would serve the purpose in the growth of a healthy economy. It would certainly provide guidance to the secured debtors in general in conducting the affairs in a manner that they may not be found defaulting and being made liable for the unsavoury steps contained under sub-section (4) of Section 13. At the same time, more importantly, we must make it clear unequivocally that communication of the reasons for not accepting the objections taken by the secured borrower may not be taken to give occasion to resort to such proceedings which are not permissible under the provisions of the Act. But communication of reasons not to accept the objections of the borrower, would certainly be for the purpose of his knowledge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort to harsh steps of taking over the management/business of viz. s....
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....eme Court (State of U.P.v. Manbodhan Lal Shrivastava, AIR 1957 SC 912, p. 918: 1958 SCR 533; State of U.P. v. Baburam, Upadhya, AIR 1961 SC 751, p. 765 : (1961) 2 SCR 679; Article 143 of the Constitution of India, In the matter of, supra, p. 769; State of Mysore v. V.K. Kangan, AIR 1975 SC 2190, p. 2192: (1976) 2 SCC 895; Govindlal Chhagan-lal Patel v. Agriculture Produce Market Committee, AIR 1976 SC 263, p. 267 : (1976) 1 SCC 369; Ganesh Prasad Sah Kesari v. Lakshmi Narayan, (1985) 3 SCC 53, pp. 59, 60 : AIR 1985 SC 964; B.P. Khemka Pvt. Ltd. v. Birendra Kumar Bhowmik, (1987) 2 SCC 407, p. 415 : AIR 1987 SC 1010; Owners and Parties interested in M.V. "Vali Pero" v. Fernandes Lopez, AIR 1989 SC 2206, p. 2213 : (1989) 4 SCC 671; State of M.P. v. Pradeep Kumar, (2000) 7 SCC 372, p. 377 : (2000) 10 JT 349; Sarla Goel v. Krishanchand, (2009) 7 SCC 658 pp. 668, 669 para 30 : (2009) 9 JT 21.). Subbarao, J. in State of U.P. v. Babu Ram Upadhya (AIR 1961 SC 751) points out, "For ascertaining the real intention of the Legislature, the court may consider inter alia, the nature and design of the statute, and the consequences which would follow from construing it the one way or the other; the....
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....easons. The provision must nonetheless be treated as 'mandatory'. We agree with the view of this Court in this regard in Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC 311 (para 45, 47, 77 and 80), Transcore v. Union of India (2008) 1 SCC 125 (para 24 and 25) and Keshavlal Khemchand & Sons (P) Ltd. v. Union of India (2015) 4 SCC 770 (para 19 and 61). We also approve of the view of several High Courts in this regard Kiran Devi Bansal v. DGM SIDBI, AIR 2009 Guj 100 (DB)(para 9 and 10); Clarity Gold Pvt. Ltd. v. State Bank of India, AIR 2011 Bom. 42 (DB)(para 11, 12 and 13); Vinay Container Services Pvt. Ltd. v. Axis Bank, 2011 (1) Mh. L.J. 882 (para 6); Krushna Chandra Sahoo v. Bank of India, AIR 2009 Orissa 35 (para 6 and 7); Tensile Steel Ltd. & Anr. v. Punjab and Sind Bank & Ors., AIR 2007 Guj 126 (para 21); M/s Jayant Agencies v. Canara Bank & Ors., Jharkhand HC in WP (C) No. 4048 of 2010 (para 27, 28, 29, 32 and 33); M/s Tetulia Coke Plant Pvt. Ltd. v. Bank of India, AIR 2013 Jhar 12 (para 5, 9, 20, 22, 23 and 24); Mrs. Sunanda Kumari v. Standard Chartered Bank, (2007) 135 Comp Cases 604 (Kar) (para 5); Palash Mukherjee v. U.O.I, W.P. 9876 (W) of 2014 Calcutta High C....
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.... (vii) On 08.10.2013, the creditor deferred the sale by issuing a public notice while considering the debtor's proposal. (viii) On 29.10.2013, the creditor granted an opportunity to the debtor to clear the debt as stated in the debtor's letter dated 03.10.2013 wherein it sent forth another proposal for extension of time for repayment stating that it will repay a principal installment of the corporate loan of a total of Rs. 89 crores by 31.12.2013. However, the creditor only extended the time for repayment by 15-20 days. (ix) On 25.11.2013, "A Letter of Undertaking" was given by the debtor accepting the schedule given by the creditor on 29.10.2013 and also acknowledging the right of the creditor to sell the assets in case of default as per the above mentioned schedule. (x) The creditor wrote to the debtor on 08.01.2014 informing the debtor that due to the default in repayment, the creditor is proceeding with steps to recover the dues and accordingly rejected the debtor's request letter dated 30.12.2013 seeking further time to repay the outstanding dues. 33. From the above, it is clear that the creditor was induced by the debtor not to take action....
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....uent case (Bradford and Bingley vs. Rashid [2006]) that an acknowledgment made "without prejudice" in the case of negotiations cannot be used as evidence of anything expressly or impliedly admitted. The House of Lords observed as follows: "But when a statement is used as acknowledgement for the purpose of s. 29 (5), it is not being used as evidence of anything. The statement is not an evidence of an acknowledgement. It is the acknowledgement." Therefore, the without prejudice rule could have no application. It said: "Here, the respondent, Mr. Rashid was not offering any concession. On the contrary, he was seeking one in respect of an undisputed debt. Neither an offer of payment nor actual payment." We, thus, find that the mere introduction of the words "without prejudice" have no significance and the debtor clearly acknowledged the debt even after action was initiated under the Act and even after payment of a smaller sum, the debtor has consistently refused to pay up. 36. All in all, as the matter stands, the debtor did not repay the loan. The debtor managed to submit a letter purporting to be a representation, containing a proposal for rescheduleme....
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....al, if such security interest is in respect of agricultural land. The exemption thus protects agriculturists from losing their source of livelihood and income i.e. the agricultural land, under the drastic provision of the Act. It is also intended to deter the creation of security interest over agricultural land as defined in Section 2 (zf) (zf) "security interest" means right, title or interest of any kind, other than those specified in section 31, upon property created in favour of any secured creditor and includes- (i) any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset; or (ii) such right, title or interest in any intangible asset or assignment or licence of such intangible asset which secures the obligation to pay any unpaid portion of the purchase price of the intangible asset or the obliga....
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....gislature which is competent to legislate on land under Entry 18 of List II. This contention appears to be completely untenable. Though Section 31(i) exempts agricultural land from the operation of the Act it is not possible to construe such a provision as a legislation on agricultural land. In fact, it is quite the contrary. Moreover, Section 31 (i) is one of the provisions in the Act which has been held by this Court as referable to Entry 45 of List I, in Union of India and Another v. Delhi High Court Bar Association and Ors. (2002) 4 SCC 275. The Court held that:- "14....... Entry 45 of List I relates to "banking". Banking operations would inter alia, include accepting of loans and deposits, granting of loans and recovery of the debts due to the bank. There can be little doubt that under Entry 45 of List I, it is Parliament alone which can enact a law with regard to the conduct of business by the banks. Recovery of dues is an essential function of any banking institution. In exercise of its legislative power relating to banking, Parliament can provide the mechanism by which monies due to the banks and financial institutions can be recovered." In State Ban....
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....emption under the Act. Entries in revenue records are, however, good prima facie evidence." (emphasis supplied) Similarly, in the case of Kunjukutty Saheb v. State of Kerala (1972) 2 SCC 364, this Court held as follows: "We suppose that something or other can be, and often is, grown on any vacant land, but that would not necessarily make it agricultural land for our purposes. To give an example the possibility of cultivating, or even the actual cultivation of, what is essentially a building site in the heart of a town would not make it agricultural land. It is the purpose for which it is held that determines its character and the existence of a few coconut trees or a vegetable patch on the land cannot alter the fact that it is held for purposes of building and not for purposes of agriculture." In any event, having regard to the character of the land and the purpose for which it is set apart, we are of the view that the land in question is not an agricultural land. The High Court mis-directed itself in holding that the land was an agricultural land merely because it stood as such in the revenue entries, even though the application made for such conversation l....
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....lause 2(L) 2(L) SARFAESI Actincludes debts or receivables and any right or interest in the security whether full or part underlying such debt or receivables or any beneficial interest in property vide (L)(i)(iv) & (v) (46 2 (l) "financial asset" means debt or receivables and includes- (i) a claim to any debt or receivables or part thereof, whether secured or unsecured; or (iv) any right or interest in the security, whether fall or part underlying such debt or receivables; or (v) any beneficial interest in property, whether movable or immovable, or in such debt, receivables, whether such interest is existing, future, accruing, conditional or contingent; or (vi) x x x). Sub-section (6) of Section 13 (13 (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.) posits that the transfer of the secured asset by the secured creditor shall vest in the transfe....
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....d to be a secured creditor even after the limited transfer to the auction purchaser under the agreement (Dated 25.02.2015). Thus, the entire interest in the property not having been passed on to the creditor in the first place, the creditor in turn could not pass on the entire interest to the auction purchaser and thus remained a secured creditor in the Act. Findings of Fraud and Collusion by the High Court 51. Finally, the High Court in its judgment renders a finding that there was in fact fraud and collusion between the creditor and the auction purchaser. According to the High Court, since the measures were taken in breach of all laws, the inference of manipulation and collusion cannot be ruled out. 52. We fail to see how such a finding of manipulation and collusion is sustainable on account of breach of law in the present case. A risk of this kind taken up by an intending purchaser cannot lead to an inference of collusion. Mainly, the finding is based on the fact that the sale is a collusion because the auction purchaser was aware that a dispute between the parties was pending and still went ahead and made a bid for the property. It is not unusual in the sale of immovab....