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Janakalyan Sahakari Bank Limited v/s Sai Fashion Exports Private Limited

    Appeal No. 65 of 2006

    Decided On, 31 May 2006

    At, Debt Recovery Appellate Tribunal At Mumbai

    By, S. S. PARKAR (CHAIRPERSON)

    Satish Shetye, Jagtap



Judgment Text


The Judgment was delivered by : HON'BLE JUSTICE S. S. PARKAR (CHAIRPERSON)

1. By this appeal, the appellant bank seeks to challenge an order dated 14th February, 2006 passed by the Presiding Officer of D.R.T.-III, Mumbai allowing the securitization application filed by the respondents under Section 17 of the (hereinafter referred to as the SRFAESI Act). The factual matrix leading to the present appeal, can be briefly stated as follows:

2. The appellant bank sanctioned term loan facility to the extent of Rs. 2.25 crores to the respondents on 5th October, 2001 against the execution of agreement of hypothecation of plant and machinery dated 8th October, 2001 by the respondents. The respondents also executed equitable mortgage of their factory building situated at Navi Mumbai and Gala No. 17-A, Vaibhav Industrial Estate, Deonar, Mumbai-88. As the respondents made defaults in repayment of the loan, their account was classified as Non-Performing Asset on 31st March, 2004. The appellant bank therefore issued notice under Sec. 13 (2) of the SRFAESI Act on 7th April, 2005, which was not replied by the respondents. Thereafter the appellant bank took action under Sec. 13 (4) of the SRFAESI Act by issuing notice dated 7th June, 2005 for taking physical possession of the secured assets. Pursuant to the said notice, the possession of the secured property was taken by the bank on 9, h June, 2005, which is not in dispute. The respondents addressed a letter dated 10th June, 2005 to the bank requesting them to allow them to carry on their business on certain undertakings. Accordingly, the bank acceded to the request of the respondents and allowed them to carry on their business in the secured property. Before that, the bank had already initiated proceedings under Section 101 of the Maharashtra Co-operative Societies Act, 1960 and applied for recovery certificate for a sum of Rs. 2, 21, 58, 123/-on 15th June, 2005. As the respondents admitted the claim, the Co-operative Court issued recovery certificate for the aforesaid sum. The respondents by their letter dated 24th June, 2005 gave a fresh proposal to the bank with regard to the repayment which was rejected by the bank by its letter dated 29th June, 2005. The respondents had also given one more proposal to the bank by their letter dated 1st September, 2005, which was also rejected by the bank by its letter dated 6th September, 2005.

3. As, according to the bank, the respondents did not make any repayment as agreed, the appellant bank prohibited the respondents from entering into the factory premises on 11th October, 2005. After stopping the respondents from carrying on their business in the factory from 11th October, 2005, the bank proceeded further for enforcing it's rights under the provisions of SRFAESI Act by issuing public notice for auction of the property on 13lh October, 2005 giving reserve price of the property in the sum of Rs. 2.71 crores. The inspection of the assets was offered on 25th October, 2005 between 12.30 p.m. to 3.30 p.m. and offers were called upto 16th November, 2005. As no offers were received matching the reserve price on that date, the auction of the property was postponed and a fresh public notice was issued on 26th January, 2006, calling tenders or offers upto 2nd February, 2006, which were to be opened at 5.30 p.m. on 3rd February, 2006. In the said notice, the reserve price was reduced to Rs. 2.30 crores. On 3rd February, 2006 a bid in the sum of Rs. 2.80 crores, which was the highest bid, was accepted. The appeal under Sec. 17 (1) of the SRFAESI Act was filed on 16th November, 2005 by the respondents. The matter was finally argued on 26th December, 2005 and after being adjourned from time to time for pronouncement of the order, the order allowing the appeal was pronounced on 1.4th February, 2006, which is challenged by the bank in this appeal.

4. The D.R.T. after having considered the rival arguments, took a view that challenge made to the action taken by the bank under the provisions of Sec. 13 (4) of the SRFAESI Act of taking possession of the property on 9th June, 2005 was in time and not barred by limitation though the appeal was filed on 16th November, 2005, because the public notice for auction was issued on 13th October, 2005. Secondly, it was held that the appellant bank had waived its right under Sec. 13(4) of the SRFAESI Act because the bank had handed over the possession of the property back to the respondents on the very next date i.e. on 10th June, 2005 in view of the arrangement arrived at between the parties.

5. On behalf of the appellant bank, it is contended that the impugned order is perverse inasmuch as the finding given is altogether against the evidence on record. Secondly, it is contended that the Presiding Officer of the D.R.T. is wrong in holding that the appeal was not time barred only because the same was filed within the prescribed period of limitation from the date of issuance of the public notice for auction i.e. 13th October, 2005 without taking into consideration the facts that the notice under Sec. 13(2) was given on 7th April, 2005 and the possession was taken on 9th June, 2005.

6. On behalf of the respondents, the impugned order is supported by contending that the respondents could have challenged the action taken by the bank under Sec. 13 of the SRFAESI Act at any stage. In any event, since the public notice issued on 13th October, 2005 was challenged within the prescribed period of limitation, the steps taken after issuing notice under Sec. 13(2) of the SRFAESI Act of taking possession of the property under Sec. 13(4) of the Act can be challenged in the appeal under Sec. 17 of the Act.

7. As regards the point of limitation is concerned, it is not in dispute that the notice dated 7th April, 2005 issued under Sec. 13(2) of the Act demanding payment of debt was not replied.

The bank waited for statutory period of 60 days before further action under Sec. 13 (4) of the SRFAESI Act of taking possession of the property was resorted to. The possession of the property was taken on 9th June, 2005 after issuing notice on 7th June, 2005. Just as the respondents did not challenge the notice dated 7th April, 2005, they did not seem to be inclined to challenge the taking possession of the secured property by the bank on 9th June, 2005 and therefore they immediately approached the bank for allowing them to carry on business on certain conditions and undertakings given by them. Those undertakings are embodied in a letter dated 10th June, 2005 addressed to the Deputy Manager of the appellant bank on behalf of the respondents. In the said letter, it is mentioned that as demanded by the bank, the respondents had given unconditional possession of the factory premises alongwith the machinery, furniture, fixtures and electrical fittings to the representative of the bank out of their volition and without any coercion. Then the bank's indulgence was sought and request was made for the bank's assistance for keeping the factory in running condition and for that purpose request was made by the respondents to permit them to act as a bank's agent for running the factory of which the bank had taken possession. In the said letter 10 undertakings were given by the respondents. The last undertaking at Sr. No. 10 can be quoted here, which reads as follows :

"Sr. No. 10. We hereby undertake to give peaceful possession of the factory, plant & machinery and other assets attached by the bank and entrusted to us as an agent at any time demanded by the bank. We will not raise any objection nor put any hindrance at the time of taking free possession of the said securities. We clearly understand that we are appointed as an agent only to run the business and repay the bank's dues as agreed."

8. In the aforesaid undertakings, it is admitted by the respondents that the factory, plant & machinery and other assets were entrusted to the respondents as an agent of the bank. They had also given undertaking to give peaceful possession of the factory at any time demanded by the appellant bank without raising any objection or hindrance. In the said undertaking it is further reiterated that respondents were appointed as an agent only to run the business and repay the bank's dues as agreed. On the basis of the above admissions and assertions made on behalf of the respondents, it is argued on behalf of the appellant bank that physical possession which was taken by the appellant bank under Sec. 13(4) of the SRFAESI Act was never handed back or restored to the respondents, but on the undertaking given by the respondents vide letter dated 10th June, 2005, the respondents were allowed to run the factory so that they could repay the dues of the appellant bank.

9. Reliance was however, placed on behalf of the respondents on the consent terms filed in the Co-operative Court on behalf of the bank on 15th June, 2005, wherein the respondents had stated that though the bank agreed to offer fresh terms of settlement in due course, the same were not given and therefore, the bank was not justified in taking back the possession or stopping the respondents from entering into the factory premises from 11th October, 2005. However, these consent terms are relied upon on behalf of the bank to show that the respondents had expressly agreed for issuing the recovery certificate in the sum of Rs. 2, 21, 58, 123/-as on 28th February, 2005.

10. On behalf of the respondents, it is contended that they had given a fresh proposal to the bank on 24th June, 2005 requesting for new concessions for their revival and also offered to make payment of Rs. 25 lacs by 10th August, 2005 and balance by three monthly instalments. In that letter also, the respondents had requested to release their factory to them under the agency agreement. In other words, the respondents admitted that the possession of the factory was with the bank. It is pertinent to refer to the reply letter of the bank dated 29th June, 2005, which mentions that after the respondents were allowed to carry on their business in the factory premises on the basis of the undertaking given by a letter dated 10th June, 2005 and in pursuance of the promise given in the consent terms dated 15th June, 2005 before the Co-operative Court to offer terms of settlement in due course, there was discussion between two sides, under which the respondents were supposed to pay a sum of Rs. 25 lacs before 24th June, 2005 and remaining balance within 2 to 3 months. Instead of making payment of Rs. 25 lacs by 24th June, 2005, the respondents gave a fresh proposal dated 24th June, 2005, which was rejected by the bank stating therein their surprise to receive the letter of 24th June, 2005, by which they had brought down the loan amount to Rs. 1.25 crores as against the agreed amount of Rs. 2.21 crores, for which the recovery certificate was issued by the Co-operative Court in view of the consent terms dated 15th June, 2005. In the said letter, the bank had also demanded that the respondents should clear the dues within a period of three months in accordance with the discussion that had taken place before receiving the letter dated 24th June, 2005 sent by the respondent to them.

11. Even after the letter of 24th June, 2005, the respondents again moved a proposal for settlement, which is reflected in their letter dated 3rd September, 2005, which was also rejected by the bank by its letter dated 6th September, 2005. It was, thereafter, that the bank proceeded further in the matter and issued public notice on 13th October, 2005 for auction of the property.

12. From the narration of the aforesaid facts, it is difficult to say that the bank had waived its statutory right under the provisions of the SRFAESI Act. As soon as the physical possession of the property in question was taken by the bank on 9th June, 2005, the respondents swung into action not with a view to challenge the said action taken by the bank but to persuade the bank to allow them to carry on the business on promise of making payment to the bank. The bank allowed them to carry on the business as their agent on certain conditions and undertakings, which had not been fulfilled by the respondents and therefore, the bank was constrained to take further action in the matter. To infer waiver from the concession given by the bank at the request of the respondents would discourage any bank from showing any latitude or giving any breathing time to the borrower under any circumstances.

13. So far as the waiver is concerned, on behalf of the respondents, reliance is placed on the judgment of the Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, reported in 1979 AIR(SC) 621, wherein it is observed that "the waiver must be properly pleaded and proved and no plea of waiver can be allowed to be raised unless it is pleaded and the factual foundation is laid in the pleadings." From the application under Sec. 17 of the SRFAESI Act, the respondents have not been able to show that the waiver was expressly pleaded or any factual foundation was laid in the pleadings. If there would be any waiver on the part of the bank, the bank would have simply restored the physical possession of the property in question to the respondents and would not have allowed them to carry on the business as their agent. If concession given by the bank to the borrower for giving opportunity for their revival is deemed to be waived, no bank can be expected to give any concession to the borrower once they resorted to legal remedies available under the law. The respondents have all along and in all the renewed terms of settlement expressly admitted that they were allowed to be on the premises as an agent of the bank as pointed out above. When the respondents made defaults in making payments, the bank stopped the respondents from entering into the factory premises, which is also admitted in the correspondence between the parties. Even in the application or the appeal filed under Sec. 17 of the SRFAESI Act, it is stated in para 5.25 that the respondents by letter dated 10th June, 2005 requested the bank to allow them to keep their factory in running condition and accordingly, the bank opened the factory premises and allowed the respondents to use the factory premises and machineries. Similarly, in para 5.33 it is stated that on 11th October, 2005 the bank restricted the respondents and their agents and servants to enter and use the factory, plant and machinery. The above averments clearly indicate that the possession of the property was not restored to the respondents on 10th June, 2005.

14. Another judgment relied on behalf of the respondents on the point of waiver is in the case of Basheshar Nath v. Commissioner of Income-Tax, Delhi & Rajasthan, reported in 1959 AIR(SC) 149, wherein it is held that the generally accepted connotation of "waiver' is that to constitute waiver, there must be an intentional relinquishment of a known right or the voluntary relinquishment or abandonment of a known existing legal right, or conduct such as warrants an inference of the relinquishment of a known right or privilege. It is further observed that waiver is contactual and is an agreement to release or not to assert a right. No such agreement expressly releasing a right or not to assert a right by or on behalf of the bank has been brought to my notice. What is sought to be relied on is the fact of allowing the respondents to carry on the business in the factory, which was under control of the bank and the respondents were not having any control over the factory. It is also not in dispute that all the while from 10th June, 2005 to 11th October, 1995 the bank was having keys of the factory premises and everyday the factory was opened and closed by the bank staff. That is how, on 11th October, 2005 they could stop the respondents from entering into the factory premises. This shows that the bank never parted with the actual physical possession of or control over the property after it took physical possession on 9th June, 2005.

15. It was then contended on behalf of the respondents, so far as the public notice dated 13th June, 2005 is concerned, that Rule 8 of the Security Interest (Enforcement) Rules of 2002 was not applied. Reliance was placed on sub-rule (5) and sub-rule (9) of Rule 8 of the said Rules. Sub-rule 5 requires that before effecting sale of the immovable property, the authorized officer shall obtain valuation report of the property from an approved valuer and in consultation with the secured creditors fix the reserve price. However, this point does not seem to have been raised before the D.R.T. But since the bank raised it in this appeal, I called upon the bank to produce the valuation report, as it was the contention of the respondents that by virtue of Order XLI, Rule 27 of the Code Of Civil Procedure, 1908, an additional evidence can be produced at the appellate stage. Accordingly the valuation report dated 4th June, 2005 was produced in which value of the property including movable and immovable property was shown for Rs. 2, 70, 92, 000/-, on the basis of which the reserve price was fixed at Rs. 2.71 crores. Secondly, as far as compliance with sub-rule (9) is concerned, in the said sub-rule, there is a condition that immovable property cannot be sold before expiry of 30 days from the date on which the public notice is published in the news-paper. The public notice in this case was issued on 13th October, 2005 and the actual sale took place on 3rd February, 2006. Thus condition laid down under sub-rule (9) of Rule 8 of the Rules had been squarely complied.

16. So far as the public notice dated 26th January, 2006 (wrongly mentioned in the pleading as public notice dated 27th January, 2006) is concerned, copy of which is produced by the advocate for the appellant bank, the contents of the said public notice show that the said notice was given in continuation of the earlier notice dated 13th October, 2005 for holding auction as on earlier date i.e. on 16th November, 2005 no offers were received matching the reserve price and therefore, subsequent notice was given only for fixing another date by lowering the reserve price to Rs. 2.30 crores. Ultimately, the price which was fetched was Rs. 2.80 crores. Apart from the fact that the said notice was not the subject-matter of the challenge, the contents of the said notice show that it was a continuation of the notice given earlier on 13th October, 2005. The object of giving 30 days' time for challenging the auction is to give an opportunity to the borrower to make the payment. Admittedly, this opportunity was not availed by the respondents and in view of the letter dated 31st January, 2006, addressed by the respondents to the bank, the respondents cannot plead ignorance about the postponement of the date of the auction to 3rd February, 2006. Except the pleading that all the notices were vague and arbitrary, it is not shown by respondents how the public notices issued for holding auction were bad. Holding of the said public auction by the bank has not been challenged nor any grounds have been made out on the basis of which the said auction can be set aside. It is not the case of the respondents that they wanted to pay or make payment to the bank which they were entitled to make within a period of 30 days before the sale was effected.

17. So far as the point of limitation is concerned, challenge to the measure of taking possession under Sec. 13(4) of the SRFAESI Act is undoubtedly time barred. But so far as the public notice dated 13th October, 2005 is concerned, there is no cogent ground on which it can be quashed. In spite of the pendency of the appeal, the auction was allowed to take place, though the respondents were aware of it. They had not even obtained stay order in respect of the said auction from the D.R.T. No irregularity is pointed out about the holding of auction nor offer is made to deposit the amount as per the provisions of Rules 60 and 61 of the Second Schedule to the Income Tax Act, 1961. Under the circumstances, the impugned order is liable to be quashed and set aside.

18. In the result the appeal is allowed and the impugned judgment and order is set aside with no order as to costs.

At this stage, the learned advocate for the respondents requests for continuation of the order of status-quo in respect of the property in question for a period of six weeks from today. On behalf of the appellants, Mr. Shetye vehemently opposes the said request.

The order of status-quo with regard to the property in question granted by the High Court and continued by this Tribunal shall continue for a period for four weeks from today.