1. Being aggrieved by taking symbolic possession of Flat No. 4, 3rd Floor (with two open car parking space) in Samudra Gaurav Apartments Private Limited, Worli Sea Face, Mumbai-400025, the tenant (applicant in S.A. No. 16) and landlord/mortgagor (applicant No. 1 in S.A. No. 17) have filed these applications/appeals under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'SRFAESI Act').
2. The respondent Bank took possession on 8.2.2005 of the flat on the principal debtor's (respondent No. 3 in S.A. No. 16 and respondent No. 2 in S.A. No. 17) failure to pay outstandings to the tune of Rs. 4.56 crores as demanded by notice dated 11.11.2004 under Section 13(2) of SRFAESI Act. The notice also pertained to other property being plot No. B-57, Industrial Area, Panchpakhadi, Thane. During the pendency of the applications/appeals, however, said property is sold resulting into recovery of about 1.50 crores. The Bank's outstandings therefore are reduced to the extent of about Rs. 3,06 crores + interest.
3. The applicant's case in S.A. No. 16 is that she is in exclusive possession of the flat as tenant on the basis of registered deed of lease dated 14.8.2000. In Small Causes Court at Mumbai, she filed R.A.D. Suit No. 162 of 2004 against respondent No. 2 landlord inter alia for injunction which order is passed in her favour by the Court. Subsequently, the applicant took out notice for amendment making the Bank as the respondent No. 2 and for injunction against the Bank also. The same was allowed by order dated 25.2.2004. During the pendency of the appeal the order is confirmed by Hon'ble High Court of Judicature at Bombay by order dated 20.7.2005 in Writ Petition No. 4493 of 2005. The Bank's action of dispossessing the applicant would thus frustrate her tenancy right which is not permissible in law. The second ground of application/appeal is that in view of Section 31(g) of SRFAESI Act read with Section 60(1)(kc) of Code of Civil Procedure (CPC), which prohibits attachment and sale of the lease of residential building, the impugned action is unsustainable. In view of the above, the S.A. is sought to be allowed.
4. The grounds in S.A. No. 17 over and above the contentions in S.A. No. 16 are inter alia is based on the definition of the Borrower in Clause (f) of Section 2 of SRFAESI Act which includes the mortgagor. The contention is that Section 13(2) of the SRFAESI Act requires classification of the account as Non Performing Asset (NPA). Such classification was not done in respect of applicant No. 1 and in fact could not be done since there is no account maintained by the Bank in its name, being mortgagor and not the principal debtor. The other ground is that the classification of account of the applicant No. 2 as NPA as on 30.11.2003 was illegal. The action under SRFAESI Act is said to be bad for aforesaid reasons and is sought to be struck down.
5. The respondent Bank by reply in the nature of affidavits of Mr. S.S. Bhalekar has refuted the grounds in both the applications/appeals. Its contention is that applicant in S.A. No. 16 is from the family of the principal debtor Snowcem India Limited and that therefore the plea of said applicant being tenant is unsustainable. The Bank has contended in this connection that at the time of creation of English Mortgage in 2002, the principal debtor Snowcem India Limited had declared that the flat was unencumbered. It is denied that the provisions of SRFAESI Act are inapplicable to the flat as alleged by both the applicants. The account of the principal Borrower is said to have become NPA as on 30.11.2003. Although this Tribunal in Appeal No. 25 of 2004 had negated that question, liberty was given to the Bank to issue fresh notice. The applications are sought to be dismissed on these grounds.
6. I have heard at length arguments of learned Counsel representing the rival parties, I have gone through the copies of the documents, as relevant for decision of the matters, to which my attention was diverted too.
7. I can venture to directly observe that S.A. No. 16 is liable to be straightaway allowed. The reason for my above saying is that she has been found by the Court of competent jurisdiction to be in possession of the flat as tenant. The Small Causes Court had clamped injunction against the landlord as also the Bank restraining the Bank from dispossessing the applicant in S.A. No. 16. Said interim injunction is made absolute by Hon'ble High Court of Judicature at Bombay vide order dated 20.7.2005 in Writ Petition No. 4493 of 2005. I do not think that the Bank's contention that the registered indenture of lease dated 14.8.2000 by the landlord in favour of the applicant in S.A. No. 16 is fraudulent can dilute this position. As to whether a person is lessee or not is within the exclusive jurisdiction of the Small Causes Court which, as said earlier, has held, albeit prima facie, in favour of applicant in S.A. No. 16. It is no one's case that the provisions of SRFAESI Act override the provisions of Maharashtra Rent Control Act and/or statutory right conferred on a person by said Act. Allowing the Bank to take physical possession of the flat therefore would be contravention of order of said competent Court. As such, the recourse to SRFAESI Act, albeit justified qua the applicant in S.A. 16 would be subject to the rights of the applicant in S.A. No. 16 which is liable to be allowed. The Bank will have to be forbidden from taking physical possession of the flat except in accordance with the law.
8. That brings me to common ground availed of by both the applications/ appeals namely that the provisions of SRFAESI Act are inapplicable to the flat in question. The provisions on the basis of which said plea is advanced are reproduced for ready reference.
31. Provisions of this Act not to apply in certain cases.-The provisions of this Act shall not apply to-
(g) any properties "(including the properties specifically charged with the debt recoverable under this Act) or sale under the first proviso to Sub-section (1) of Section 60 of the Code of Civil Procedure, 1908 (5 of 1908)." Added by amendment w.e.f. 11.11.2004.
60. Property liable to attachment and sale in execution of decree.-(1)....
Provided that the following particulars shall not be liable to such attachment or sale, namely:-
(kc) the interest of lessee of a residential building to which the provisions of law for the time being in force relating to control of rents and accommodation apply.
The learned Counsel for the applicants while drawing my attention to the aforesaid provisions have urged that interest of a lessee of a residential building (applicant in S.A. No. 16) cannot be attached and sold as per Section 60 of CPC. It is further urged that Section 31 of SRFAESI Act lays down that provisions of the Act do not apply to such properties. The argument may appear bony at the first blush. But, the closure scrutiny reveals that the submission does not hold any water. Now, what Clause (kc) appended to proviso of Sub-section (1) of Section 60 of CPC prohibits is attachment and sale of interest of the lessee of a residential premises governed by the Rent Control Act. The clause does not prohibit attachment and sale of owner's/landlord's property de hors the tenant's above said interest. That is quite understandable since the provision is aimed at protecting the tenant's rights and cannot be imagined to have put embargo on the owner's reversionary rights. The learned Counsel for the applicant has in this connection relied on Full Bench decision of parent High Court in the matter between T.E.S. Pvt. Ltd. v. Indian Chemicals 2004(2) Mh. LJ. 305. Their Lordships in the said matter were not concerned with attachment and sale of the landlord owner's reversionary right in the properties leased out to a tenant. The authority does not therefore advance the applicant's contention. For these reasons, I do not have any hesitation in discarding applicant's plea in question.
9. Having disposed of the issue raised by both the applicants, I now take up the point availed of by applicant in S.A. No. 17. Mr. Colabawala has rightly urged that notice under Section 13(2) of SRFAESI Act (reproduced below for ready reference) can be issued only after the account of the borrower is classified as NPA.
13(2) Where any borrower,who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under Sub-section (4).
The learned Counsel has submitted that the meaning of word 'Borrower' in aforesaid sub-section would be the same as in Section 2(1)(f) of the SRFAESI Act which clause is also extracted below:
2(1)(f). "borrower" means any person who has been granted financial assistance by any Bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any Bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any Bank or financial institution in relation to such financial assistance.
The following 3 persons fall within the aforesaid definition-
(i)who has been granted financial assistance;
(ii) who has given any guarantee;
(iii) who has created any mortgage or pledge as security for the financial assistance.
10, Admittedly, the applicant No. 1 in S.A. No. 17 is covered by item No. 3. Mr. Colabawala has submitted that the 'Borrower' (from any of the aforesaid items) in Section 2(1)(f) should be the same in Section 13(2) of the SRFAESI Act. If that be so, the applicant could not have proceeded under SRFAESI Act without classification of applicant No. 1's account. The Bank however has not done so (in fact, it could not do so), because it does not maintain any account in the name of the borrower. It is submitted that the notice under Section 13(2) of SRFAESI Act could not have been given.
11. I have given my anxious consideration to the aforesaid argument which fails to fascinate me. If the Bank does not have account in the applicant No. l's name, Legislatures cannot be said to have directed compliance of impossible thing. In my considered opinion, a person covered by particular item of the word 'Borrower' in Section 2(1)(f) may not necessarily be the same for the purpose of Section 13(2). The definition clause enlists categories of the Borrower. But the word 'Borrower' in Section 13(2) would always be from the first category, namely person who has been granted financial assistance. This inference can also be drawn from the qualifying group of words (underlined earlier) after word 'Borrower' in Section 13(2) of SRFAESI Act could be one having account with the Bank. That being so, it is not possible to endorse the contention forwarded on behalf of the applicants. The above discussion is sufficient for disposing of the issue on the anvil.
12. Coming to the all important issue of NPA, it may be at the outset noted that the notice Under Section 13(2) of SRFAESI Act states that account was classified as NPA on 30.11.2003. Mr. Colabawala, learned Counsel for the applicant has straightaway submitted that the issue as to whether the account was NPA on the aforesaid date was decided against the Bank by this Tribunal in Appeal No. 25 of 2004 filed by present applicants and two others. My attention is drawn to Para Nos. 18 to 21 of the judgment delivered by this Tribunal on 21.9.2004 holding that the account could not be classified as NPA within six months next before the issuance of notice (20.3.2004) under Section 13(2) which was germane to that appeal. The Tribunal had observed that there were credit entries in the account between 28.11.2003 and 29.12.2003 in the aggregate of Rs. 55 lakh. Upon that, the Tribunal quashed above referred notice and consequently restrained the Bank from taking any action under SRFAESI Act on basis of said notice. Mr. Vilas Naik, learned Counsel for the Bank has pointed out that this Tribunal in operative part 'C' of the judgment had clarified that the Bank would be at liberty to issue fresh notice under Section 13(2) of SRFAESI Act. In reply, Mr. Colabawala submitted and in my view rightly that the Tribunal had given the liberty for removal of doubt, if any, in the minds of the parties to the effect that the account could never be classified as NPA. I also find substance in his further submission that by said clarification, this Tribunal did not allow reopening and reagitation of the issue of classification of account as NPA on the same set of facts. The doctrine of issue estoppel also prevents that course being followed. In these circumstances, I hold that the Bank could not have classified the account as NPA as on 30.11.2003 on the same set of the facts and issued notice under Section 13(2) of SRFAESI Act.
13. Even if above aspect is for a while kept aside and the issue as to whether the classification of the account as NPA as on 30.11.2003 is proper or not and whether the notice under Section 13(2) of SRFAESI Act is legal and valid is re-examined, it would be seen that the Bank is hopelessly placed. It may be reiterated in this connection that there are several payments made within six months of the classification of the account as NPA on 30.11.2003. In other words, it is not that this is a straightforward case of the interest and/or instalment of principal remaining overdue for a clear period of more than 180 days. The same was the case in Appeal No. 25 of 2004. In the notice impugned in that matter also the Bank went on to simply state that the account is classified as NPA without bothering to clarify as to how the account could become NPA irrespective of significant payments within six months of issuance of notice. This Tribunal had observed in Para No. 19 of Appeal No. 25 of 2004 that the Bank ought to have elaborately stated the facts as to how the account was treated as NPA irrespective of credit entries within 180 days of the issuance of the notice. In Para No. 21 of the judgment, this Tribunal went on to point out the importance of the statutory notice under Section 13(2) of SRFAESI Act. It was observed that the notice, in case like that, should give particulars of the Bank's claim in details from which a person sho
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uld be in a position to readily know the default and should provide opportunity of complying, without reasonable controversy. The observation in said judgment clearly is that one should not be required to do forensic examination and analysis of the notice of the statutory notice for finding out whether classification of the account as NPA was proper. It seems that the Bank has not taken any leaf from the above observation and has not learnt a lesson therefrom. The Bank did not bother to sent the chart (Exh. IV to the reply) with notice under Section 13(2) of SRFAESI Act to the Borrower giving details as to how the account was classified as NPA. In these circumstances, I hold that the impugned notice under Section 13(2) of SRFAESI Act being omnibus is bad in law. 14. Thus, viewed from any angle the action of the Bank under SRFAESI Act is illegal and therefore unsustainable even against applicants in S.A. No. 17 which is therefore liable to be allowed. 15. In the result, I pass following order: ORDER (A) Both the securitisation applications are allowed with costs. (B) Respondent No. 1's notice dated 11.11.2004 under Section 13(2) of SRFAESI Act is declared illegal and inoperative and is hereby quashed. (C) The respondent No. 1 Bank shall not take any steps including physical dispossession of applicant in S.A. No. 16 of 2005 except in accordance with law pursuant to the notice. (D) The Bank shall return possession (symbolic) to the applicant in S.A. No. 16 of 2005. (E) The original judgment shall be kept in S.A. No. 16 of 2005 and its xerox true copy in S.A. No. 17 of 2005.