TaxTMI 
TaxTMI 
TaxTMI 
2020 (1) TMI 34
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....nancial Assets and Enforcement of Security Interest Act, 2002 (for short, hereinafter referred to as 'the SARFAEASI Act') i.e.., Demand Notice dated 13.5.2019 as per Annexure-AC is not applicable since their account never became NPA, consequently SARFAESI Act, 2002 is not applicable; issue a writ of certiorari to quash the notice dated 13.5.2019 issued under Section 13(2) of the SARFEASI Act, 2002 Annexure-AC and also the rejection of their application vide notice dated 22.7.2019 Annexure-AG issued under Order 13(4) of the SARFEASI Act as illegal, void and in violation of the principles of natural justice; direct the respondents not to take any steps in pursuance of notice of possession dated 22.7.2019 in terms of Section 13(4) of the SARFEASI Act, Annexure-AG; and issue a writ of mandamus restraining the respondents-Banks from assessing the moveable assets of M/s. Singhi Build Tech Pvt. Ltd., i.e., the Tenant of petitioner No.2; declare that their account must be classified as NPA under Section 2(1)(o) of the SARFEASI Act, only on such classification made, Section 13(2) of the SARFEASI Act cannot be invoked by respondent No.1; declare that notice dated 22.7.2019 issued under Secti....
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....pital limited and the same was revised upto Rs. 162 Crores on 20.12.2018 as per Annexure-F. They deposited the Memorandum of Title Deeds to the Bank on 22.12.2017 and 27.2.2018 as per Annexures-G and H. The account of the petitioners was in healthy condition and there was no default committed by them. In the first week of January, 2019, the Bank had processed and recommended for enhancement of OCC Limit from Rs. 162 Crores to Rs. 225 Crores and Rs. 63 Crores proposed enhancement to be funded by the 3rd Banker - M/s. Canara Bank, M.G. Road, Bengaluru-1 under consortium funding as per their letter dated 1.8.2019 , Annexure-M. On 8.1.2019 when the petitioners requested for reduction in consortium fee and fresh assessment of cash credit limit from existing Rs. 162 Crores to Rs. 225 Crores as per Annexure-N, a notice of raid had been served on them under the provisions of Section 67 of the Karnataka Goods and Service/Central Goods and Service Tax, 2017 to inspect the premises by virtue of the authorization notice dated 8.1.2019 as per Annexure-P. A search was conducted on 9.1.2019 at 9.50 a.m. on the petitioners' offices in Shanthinagar and Money Point at Bangalore, and the Warehouses a....
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....ent Application dated 25.4.2019. The rejection of the proposal summarily by the AGM of the Branch on 29.4.2019 is without jurisdiction. They further submit that the transactions in the OCC accounts by the Banks from 10.1.2019 as per the letter dated 17.1.2019 clearly establishes that their had not become NPA and it was because of the arbitrary act of the Bank in stopping the debit transactions in their OCC accounts. Their business had been paralyzed because of the act of the AGM of the Indian Bank. Hence, the condition precedent to apply SARFAESI Act, 2002 was not at all in existence and it is a question of jurisdiction of Enforcement or application of SARFAESI Act, 2002 against their account where the account did not become NPA. The operation of the account was barred at the instance of the Bank. Therefore, the proceedings are without jurisdiction. 8. It is further contended by the petitioners that they approached the Bank Manager to press for OTS application. Further for equitable consideration and because of the circumstances beyond their control, unlawful and illegal act of the Assistant Branch Manager in stopping the operation of the accounts, they wanted to maintain a good r....
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.... been operated by the 1st petitioner. Therefore, there is no need for the Authorised Officer to provide breakup of dues or the basis for the interest calculation while issuing the Demand Notice in terms of the SARFAESI Act. It is further contended that the petitioners ever since January, 2019 had been interacting with the respondent-Bank, several meetings were held and also participated including as invitees to the Consortium Banks Meetings, etc. but had not paid any amount especially after January, 2019 when the default started. 12. It is further contended that there is absolutely no necessity for the Bank or it is enjoined in the provisions of the SARFAESI Act or in any statutory provision, to notify and classify the account as 'Standard', 'Sub-standard', 'default and classify as losses' and 'willful defaulters' as a pre-requisite for issuance of Demand Notice under Section 13(2) of the SARFAESI Act, but the petitioners have misinterpreted the provisions of the SARFAESI Act in their reply notice dated 10.7.2019. 13. It is further contended that the past credentials of the borrower on any renewal or restricting the loan account earlier, are of no valid criteria for withholding i....
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....d that the petitioners cannot now contend that there is any deficiency or short fall in the reply of the Bank dated 19.7.2019 to their representation dated 13.5.2019, as per the dictum of the Hon'ble Supreme Court in the case of ITC Ltd., -vs- Blue Coast Hotels Ltd reported in (2018)15 SCC 99, and hence non-compliance of Section 13(3-A) of the SARFAESI Act cannot be of any avail to the debtor whose conduct has been merely to seek time and not to repay the loan as promised on several occasions. The alleged action by the GST Authorities both in Karnataka and Tamilnadu is not a ground for non-payment of amount to the bank within time. The petitioners having prima facie committed such serious economic offences, cannot now complain that, they could not pay the demanded loan liability as per the Demand Notice in view of the revenue enforcement actions by the GST Authorities and certain alleged consequences arising out of the same. Therefore, the respondent-Bank Authorities cannot withhold its action for recovery for the large outstanding dues by proceeding against all moveable and immoveable properties including its seizure by the GST Authorities, cannot be accepted. Admittedly, due to t....
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....nd loan documents. They also failed to regularize the Working Capital Loan Account with respondent No.4. Therefore, respondent No.4 classified their CCH Loan account as NPA on 29.5.2019 due to non-servicing of interest from the last 90 days as per IRAC Norms of RBI. Both the respondents-Banks on 24.4.2019 issued legal notice calling upon the petitioners to pay a sum of Rs. 141,32,53,484.23 to respondent No.1 and Rs. 24,93,08,781/- to respondent No.4 together with future interest at the agreed rate from 1.4.2019, but the petitioners have failed to pay the said loan with interest. Therefore, both the Banks have initiated proceedings by issuing legal notice under the provisions of Section 13(2) and 13(4) of the SARFAESI Act on the petitioners. Therefore, the present writ petition filed by the petitioners is not maintainable and accordingly, sought to dismiss the writ petition. 18. I have heard the learned Senior Counsel for the parties to the lis. IV - ARGUMENTS ADVANCED BY THE LEARNED SENIOR COUNSEL FOR THE PETITIONERS 19. Sri V. Laxminarayana, learned Senior Counsel for the petitioners contended that the impugned notice issued by the respondents-Banks under Section 13(2) and 13(4....
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.... account and debits were not allowed on 9.1.2019 which was without notice and the petitioners were directed to appear before them on 22.1.2019. Therefore, the petitioners have not committed any default as alleged by the bank so as to attract the provisions of Section 13(2) and 13(4) of the SARFAESI Act. 21. The main grievance of the learned Senior Counsel for the petitioners is that before the due date i.e., on 31.1.2019, the cash credit facility was stopped from 10.1.21019 and it was not a case of NPA. It is the voluntary act of the Bank in stopping the loan facility and the bank had no power to declare as NPA and it is contrary to prudential norms issued by the Reserve Bank of India from time to time. Therefore, impugned actions of the respondents cannot be sustained. 22. The learned Senior Counsel further contended that upon default, the bank/secured creditor is under statutory obligation to classify the assets of the borrower in terms of the RBI Circulars. The classification must be discernable from the records that after due application of mind, the competent authority has complied with the Guidelines issued by the Reserve Bank of India and while classifying as per the Reser....
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.... the bar of alternative remedy would not come into picture. 26. The learned Senior Counsel further contended that the petitioners never committed default and it is only at the instance of the GST authorities, who conducted raid on the office of the petitioners' at Karnataka and Tamilnadu, the bank prevented the petitioners from availing cash credit facilities and failed to debit the payments towards the accounts of the petitioners towards loan and amount sent by the customers. Hence the petitioners were prevented from operating their accounts and this act of the secured creditor had lead to non-payment or default being committed by the petitioners and thereby the petitioners were classified as NPA without following the procedure and the guidelines issued by the RBI. The learned Senior Counsel further referred to the Circular dated 1.7.2015 regarding the revised Guidelines issued by the Reserve Bank of India at Clause-3.1.1 which prescribes that the Banks should classify their assets into the following broad groups as under: i) Standard Assets ii) Sub-standard Assets iii) Doubtful Assets iv) Loss Assets 27. The learned Senior Counsel further contended that RBI Guideline 3.....
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.... 30. Relying upon Guidelines - 3.3.1 - Basic considerations, 3.3.2-Advances Granted under Rehabilitation Packages Approved by BIFR/Term Lending Institutions, 3.3.3-Internal System for Classification of Assets as NPA, the learned Senior Counsel contended that the respondents have proceeded to issue the impugned notices in utter violation of the provisions of the RBI Guidelines and therefore, the impugned action cannot be sustained. 31. The learned Senior Counsel further contended that where there has been delay beyond the prescribed period in reporting the fraud to the Reserve Bank of India, the entire provision is required to be made discernable to the petitioners and also action where there has been any delay by the Bank in reporting a fraud or against the petitioners. Therefore, he sought to allow the writ petition. 32. In support of his contentions, the learned Senior Counsel for the petitioners relied upon the following judgements: i) Keshavlal Khemchand and Sons Private Limited and others vs. Union of India and others reported in (2015) 4 SCC 770- paragraphs-32 and 54; ii) ITC Limited vs. Blue Coast Hotels Limited and others reported in (2018)15 SCC 99 - paragraphs-19 an....
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.... of objections by the 1st respondent clearly depicts that as on 31.1.2019, the outstanding due payable by the petitioners to the 1st respondent-Bank was Rs. 138,61,09,385/-. Therefore, the respondent-Bank issued legal notice to the petitioners on 30.4.2019 calling upon to clear the due amount of Rs. 141,73,29,479/-. On 25.4.2019, the petitioners made proposal of one time settlement to the Indian Bank. On 29.4.2019, the Assistant Manager of the Indian Bank returned the application to the petitioners dated 25.4.2019 rejecting the OTS proposal and advised to clear the entire liability. On 30.4.2019 since the petitioners had not paid any interest in the account for a period of more than 90 days, the loan account was classified as NPA as per the provisions of Section 2(o) of the SARFAEASI Act and in accordance with Guidelines 2.1.2 of the Reserve Bank of India Master Circular relating to NPA dated 1.7.2015. He would further contend that on 13.5.2019, respondent Nos.1 to 3 once again issued notice under the provisions of Section 13(2) of the SARFAEASI Act demanding a sum of Rs. 142,73,29,479/- along with interest from 30th April, 2019. On 10.7.2019 the petitioners replied to the demand n....
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....owards International best practices and to ensure greater transparency is '90 days' over due norms for identification of NPAs have been made applicable from the year ended March 31, 2004 i.e. any amount due to the bank under any credit facility, if not paid by the due date fixed by the bank becomes overdue. 35. Relying upon RBI Guidelines 2.1.2 and 4.2 of the RBI Guidelines, it is contended by the learned Senior Counsel for the respondents that the petitioners neither paid the principal amount or the interest for a period of 90 days and therefore, the respondents declared the petitioners' account as NPA on 30th April, 2019 and the same was, accordingly, informed to the petitioners by issuing notice under the provisions of Section 13(2) of the SARFAESI Act on 19.7.2019. 36. It is further contended that as could be seen from the Guidelines of the RBI, the classification of Assets as Non-Performing is under the Guidelines 4.2 of the Master Circular dated 1.7.2015. The account of the petitioners has been classified as 'Sub-Standard' and the same remained so for a period of 12 months from the date of declaration as NPA and therefore, there is illegality or infirmity in declaring the a....
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....nicated the sanction of working capital of Rs. 24.50 Crores to the petitioners on 3.2.2018 and granted permission for ceding Pari Passu charge on primary security and collateral security on Reciprocal basis with the Indian Bank. It is also not in dispute that the petitioners by way of Memorandum of deposit of Title Deeds deposited the title deeds on 27.2.2018 in favour of the Indian Bank and Vijaya Bank in respect of immoveable properties. According to the petitioners, on 9.1.2019 the Revenue Officers in pursuance of the authorization order dated 8.1.2019 carried search and seizure on the premises of the petitioners for nonpayment of GST. 42. It is the contention of the petitioners that both the Banks stopped the debit transaction in the OCC Accounts of the petitioners from 10.1.2019 soon after the raids and the last interest payment was falling due on 31.12.2018 and the same was paid on the same day to both the banks. The respondent-Bank without considering the representation and without providing an opportunity could not have classified as NPA. Therefore, he contended that the impugned action of the respondents cannot be sustained. 43. It is the specific case of the respondents....
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....ioners have admitted in their reply dated 10.7.2019 that they have neither made any payment of loan due nor made any effort to regularize the defaulted account in view of the enforcement action taken for recovery of GST dues by the GST Authorities. It is also not in dispute that the petitioners that as on the date of NPA i.e., 29.5.2019, the amount due to the bank was Rs. 142,73,29,479.23 ps. Inclusive of the principal amount not paid to the respondent-Bank. On that ground also the writ petition is liable to be dismissed as not maintainable. 46. When the matter was argued on several occasions by the learned Counsel for the parties, this Court expressed and directed the learned Senior Counsel for the petitioners to show some bonafide attempt on the part of the petitioners by paying reasonable amount to the Bank in order to interfere with the proceedings initiated by the Bank under Section 13(2) and 13(4) of the SARFAESI Act. Inspite of the same, it is contended by the learned Senior Counsel for the petitioners that the very provisions of the SARFAESI Act is not applicable in view of the provisions of Section 31(j) of the SARFAESI Act, but the fact remains that the petitioners have....
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....dispute that the petitioners have not made any efforts to pay the amount due to the Bank subsequent to declaration of NPA on 30th April, 2019 till today. Therefore, the contention of the learned Senior Counsel for the petitioners that the provisions of the SARFAESI Act is not applicable to the present case, cannot be accepted as the petitioners, who are borrowers have availed and utilized the total sanctioned loan amount of Rs. 137,50,00,000/- and committed default in not paying any interest as well as the principal amount as on 30.4.2019. The petitioners were liable to pay more than 100% of the principal amount and interest. Therefore, the provisions of Section 31(j) of the SARFAESI Act is not applicable to the petitioners as rightly contended by the learned Senior Counsel for the respondents. Accordingly, the contention of the petitioners that the provisions of the SARFAESI Act is applicable cannot be accepted. 49. The Hon'ble Supreme Court while considering the provisions of the SARFAESI Act in the case of ICICI Bank Ltd -vs- Umakanta Mohapatra reported in 2018 SCC Online SC 2349 at paragraph-4 has held as under: "4. The writ petition itself was not maintainable, as a result ....
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.... on the point it would have been clear that in encashment of bank guarantee the applicability of the principle of undue enrichment has no application. 31. It is unfortunate, that notwithstanding the authoritative pronounce-ments of this Court, the High Courts and the courts subordinate thereto, still seem intent on affording to this Court innumerable opportunities for dealing with this area of law, thought by this Court to be well settled. 51. In the case of Authorised Officer, State Bank of Travancore and Another -vs- Mathew K.C. reported in (2018) 3 SCC 85, the Hon'ble Supreme Court with regard to discretionary jurisdiction under Article 226 of the Constitution of India at paragraphs-10, 15, 16 and 17 has held as under: "10. In Satyawati Tondon [United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110 : (2010) 3 SCC (Civ) 260] the High Court had restrained [Satyawati Tondon v. State of U.P., 2009 SCC OnLine All 2608] further proceedings under Section 13(4) of the Act. Upon a detailed consideration of the statutory scheme under the Sarfaesi Act, the availability of remedy to the aggrieved under Section 17 before the Tribunal and the appellate remedy under Section 18 before ....
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....ublic money generated at the taxpayer's expense. Such loan does not become the property of the person taking the loan, but retains its character of public money given in a fiduciary capacity as entrustment by the public. Timely repayment also ensures liquidity to facilitate loan to another in need, by circulation of the money and cannot be permitted to be blocked by frivolous litigation by those who can afford the luxury of the same. The caution required, as expressed in Satyawati Tondon [United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110 : (2010) 3 SCC (Civ) 260], has also not been kept in mind before passing the impugned interim order: (SCC pp. 123-24, para 46) "46. It must be remembered that stay of an action initiated by the State and/or its agencies/instrumentalities for recovery of taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations towards the citizens. In cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/....
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....elied upon the judgement in the case of Mardia Chemicals Ltd., -vs- Union of India reported in (2004) 4 SCC 311 regarding paragraphs 37, 44 and 45, the said judgment is not helpful to the petitioners. In the said judgment at paragraph-37, the operative portion clearly states that from what is quite evident that guidelines as laid down by Reserve Bank of India which are in more details, but not necessary to be reproduced here, lay down the terms and conditions and circumstances in which the debt is to be classified as Non-Performing Asset as early as possible. Therefore, it was held that there was no substance in the submission made on behalf of the petitioners that there are no guidelines for treating the debt as Non- Performing Asset. At paragraph-40, in the operative portion has held as under:- "It is thus clear that an appeal under sub-section (1) of Section 17 would lie only after some measure has been taken under sub-section (4) of section 13 and not before the stage of taking of any such measure. According to subsection (2), the borrower has to deposit 75% of the amount claimed by the secured creditor before his appeal can be entertained. 53. Admittedly in the present cas....
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.... 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. secured assets without intervention of the court. Such a person in respect of whom steps under Section 13(4) of the Act are likely to be taken cannot be denied the right to know the reason of non-acceptance and of his objections. It is true, as per the provisions under the Act, he may not be entitled to challenge the reasons communicated or the likely action of the secured creditor at that point of time unless his right to approach the Debts Recovery Tribunal as provided under Section 17 of the Act matures on any measure having been taken under subsection (4) of Section 13 of the Act." 54. In the case of Transcore -vs- Union of India and Another reported in (2008) 1 SCC 125, the Hon'ble Supreme Court has held that it is domain of the Bank or Financial Institutions which ha....
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....t of this Court in Mardia Chemicals [(2004) 4 SCC 311] whereby the borrower is permitted to make representation/objection to the secured creditor against classification of his account as NPA. He can also object to the amount due if so advised. Under Section 13(3-A), if the bank/FI comes to the conclusion that such objection is not acceptable, it shall communicate within one week the reasons for nonacceptance of the representation/ objection. A proviso is added to Section 13(3-A) which states that the reasons so communicated shall not confer any right upon the borrower to file an application to DRT under Section 17. The scheme of sub-sections (2), (3) and (3-A) of Section 13 of the NPA Act shows that the notice under Section 13(2) is not merely a show-cause notice, it is a notice of demand. That notice of demand is based on the footing that the debtor is under a liability and that his account in respect of such liability has become substandard, doubtful or a loss. The identification of debt and the classification of the account as NPA is done in accordance with the guidelines issued by RBI. Such notice of demand, therefore, constitutes an action taken under the provisions of the NPA....
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....y the parties, comes to the conclusion that any of the measures taken under Section 13(4) are not in accordance with the NPA Act, it shall direct the secured creditor to restore the possession/ management to the borrower (vide Section 17(3) of NPA Act). On the other hand, after the DRT declares that the recourse taken by the secured creditor under Section 13(4) is in accordance with the provisions of the NPA Act then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to any one or more of the measures specified under Section 13(4) to recover his secured debt." "35. In the present matter, there is a controversy with regard to payment of court fee in the matter of appeal to the Appellate Tribunal against the action taken under Section 13(4) of the NPA Act. In this connection, certain facts are required to be stated. On 21.06.2002 the NPA Act came into force. As stated above, any person including borrower aggrieved by action taken under Section 13(4) of NPA Act is entitled to move the tribunal in appeal under Section 17(1) of NPA Act. The tribunal being established under Section 3(1) of the DRT Ac....
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.... has violated the guidelines of the RBI. The respondents- Banks in categorical terms in the Statement of Objections contended that they have followed the procedure as contemplated by the RBI Guidelines. Admittedly in the present case, the petitioners have not paid any single pie towards the interest since January 2019 till April, 2019 and therefore, the said judgment has no application to the facts and circumstances of the present case. 57. In the case of Keshavalal Khemchand and Sons Private Limited and Others -vs- Union of India and Others reported in (2015)4 SCC 770, relied upon by the learned Counsel for the petitioners, the Hon'ble Supreme Court while considering the provisions of Debt, Financial and Monetary Laws and provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 especially provisions of Section 2(1)(o) at paragraphs-32 held that since such a system was also found to be inadequate for the speedy recovery of the monies due from the borrowers to the creditors, the Parliament made the Act under which the process of ascertainment of the amounts due from a borrower by an independent adjudicatory body is dispe....
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....The respondent- Bank therein had failed to adhere to the earlier directions issued by this Court to consider whether the petitioners' account has been declared as NPA in terms of the RBI Guidelines, the same was not re-considered. Therefore, the said judgment passed in the year 2008 has no application to the facts and circumstances of the present case. 60. The Hon'ble Supreme Court in the case of ITC Limited -vs- Blue Coast Hotels Limited and Others reported in (2018)15 SCC 99 while considering the provisions of Section 13(3-A) of the SARFAESI Act r/w Rule 3-A of the Security Interest (Enforcement) Rules, 2002 at paragraph-32 has held as under: "32. In these circumstances, we have no doubt that the failure to furnish a reply to the representation is not of much significance since we are satisfied that the creditor has undoubtedly considered the representation and the proposal for repayment made therein and has in fact granted sufficient opportunity and time to the debtor to repay the debt without any avail. Therefore, in the fact and circumstances of this case, we are of the view that the debtor is not entitled to the discretionary relief under Article 226 of the Constitution wh....