U.C. Dhyani, J.(Oral)

1. By means of present writ petition, the petitioner seeks following relief, among others:

"(i) Issue a writ, order or direction in the nature of certiorari to quash the notice dated 2.1.2016 & 6.1.2016 (annexure no.1 & 2) issued u/s 13(2) of the 'SARFAESI Act', 2002 and further quashing the action of the respondent bank dated 2.1.2016 & 6.1.2016 classifying the account of the petitioner Company as NPA.

(ii) To issue a writ, order or direction in the nature of mandamus commanding the respondent Bank not to proceed under the SARFAESI Act of 2002 against the petitioner."

2. The petitioner is a private limited company and is engaged in the business of marketing of Allopathic and Ayurvedic Medicines (Ayurvedic Syrup in the name of crack stone and clear stone for removal of the kidney stone, medicated soap and cream in the name of Light and White cream and sopa and a capsule in the name of Devifit for Diabetes. In August, 2013, the petitioner (hereinafter referred to as the borrower company) availed a C.C. limit facility for Rs. 25 lakhs as a working capital from the Punjab National Bank (respondent herein), which was subsequently enhanced to Rs. 80 lakhs in June, 2014.

3. On 02/03.12.2015, the respondent-bank affixed a sale notice on the outer wall of the premises of the borrower company indicating therein that due to non payment of bank's dues by the borrower, the account of the company became Non-Performing Asset (NPA for short). The borrower served a notice dated 20.12.2015 upon the respondent-bank, which was replied to by the respondent-bank on 07.01.2016. The borrower company was stopped by the respondent bank from operating its account with the respondent-bank.

4. On 02.01.2016, the respondent-bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the 'SARFAESI Act') indicating therein the date of N.P.A. as 02.01.2016. In the previous notice, which was pasted on the outer wall of the premises of borrower company, the date of NPA was not mentioned. Thereafter, the date of NPA was further changed to 06.01.2016.

5. It is the contention of learned counsel for the petitioner that in the reply notice dated 07.01.2016, the respondent-bank has demanded the entire outstanding dues within 15 days, hence the bank has served its earlier notices under Section 13(2) of the Act, whereby the outstanding dues as on 31.12.2015 was to be paid within 16 days. The notices dated 02.01.2016 and 06.01.2016 have, therefore, been waived by the respondent-bank.

6. On 06.01.2016, the respondent issued another notice under Section 13 of the Act, in which, the date of NPA was mentioned as 06.01.2016. The borrower company made an objection/ representation under Section 13(3)(a) of the Act to the respondent-bank, but the respondent-bank decided the representation/objection of the borrower company through a reply notice dated 18.12.23016 without considering the substantial arguments of the petitioner.

7. It is the next contention of learned counsel for the petitioner that as per the statement of account of the borrower company, the interest of the quarter, i.e., October, 2015 to December, 2015, was due towards the borrower company and the borrower company had 90 days' time from the end of the quarter to service the interest fully. According to the guidelines and directives of the Reserve Bank of India (hereinafter referred to as the RBI), the respondent-bank has violated the guidelines and directives of the RBI and has wrongly classified the accounts of the company as NPA. The account of the borrower company was under limit and did not exceed the sanctioned amount of Rs. 80 lakhs. It is further contended that the respondent-bank has wrongly classified the petitioner company as Non-Performing Asset (NPA) in violation of clause 2.1.3 of the RBI guidelines, which speaks as below:

"2.1.3 In case of interest payments, banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter."

8. Respondent-bank should classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter. According to the calculation made by learned counsel for the petitioner, the interest due against the petitioner is to the tune of Rs. 2,46,552/-. Learned counsel for the respondent-bank, at this juncture, submitted that the material worth Rs. 3.50 lakhs was kept in the godown of the petitioner company; the hypothetical goods have been disposed of by the petitioner company and the requested amount was not deposited by the petitioner.

9. InMardia Chemicals Ltd. & others v. Union of India & others, 2004 (4) SCC 311, it was observed by Hon'ble Supreme Court that the purpose of serving a notice upon the borrower under sub-section (2) of Section 13 of the Act is, that a reply may be submitted by the borrower explaining the reasons as to why the measures may or may not be taken under sub-section (4) of Section 33 in case of non-compliance of notice within 60 days. The creditors must apply its mind to the objections raised in reply to such notice and an internal mechanism must be particularly evolved to consider such objections raised in the reply to the notice. There may be some meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under sub-section (4) of Section 13 of the Act. Once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness on the part of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under sub-section (4) of Section 13. It was further observed by Hon'ble Supreme Court that as per the provisions under the Act, the borrower 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 Debt 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.

(emphasis supplied)

10. It will be appropriate to quote the observations made by Hon'ble Allahabad High Court inRita Bagga & others v. Union of India & others, 2015 (111) ALR 190, which reads as under:

"34. At this stage, we must observe that the finance is required so that the petitioners could run their business. If the loan or the cash credit limit is withdrawn abruptly it becomes difficult for the borrower to repay the amount since the amount sanctioned by the Bank is invested in the business. We find that the business of the petitioners is running and, it is not a case where the business has stopped running or where the business is running in a loss. No doubt the respondent-Bank is required to protect the loan which it had sanctioned but, at the same time, the respondent-Bank should adopt a practical and pragmatic approach for which the RBI has framed guidelines which are binding upon them and which are required to be followed meticulously. In the instant case, we find the respondent-Bank has failed to adhere to the terms indicated in the guidelines. Consequently, the action of the respondent-Bank in declaring the petitioners' account as NPA by its order dated 31.12.2014 as well as the notice dated 1.1.2015 issued under Section 13(2) of the Act and the notice dated 17.3.2015 issued under Section 13(4) of the Act are quashed. The writ petition is allowed."

(emphasis supplied)

11. The Division Bench of this Court inM/s Amba Devi Paper Mills Ltd. v. State Bank of India & another, 2011 (2) U.D. 9observed as follows:

"1. The writ petition has been dismissed at the threshold on the ground that the appellant has alternative efficacious remedy of filing an appeal under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the Act). As it appears to us, Sub-Section 3A has been inserted in Section 13 of the Act with effect from 11th November, 2004. In terms whereof, the secured creditor, if not accepting representation or objection of the borrower, is obliged to communicate within one week of receipt of representation or objection, the reasons for non-acceptance of the representation or objection of the borrower. In the instant case, it is the contention of the appellant that within one week from the date of representation or objection of the appellant, respondent Bank did not communicate its decision not to accept such representation or objection with reasons in support thereof. However, even if the respondent Bank had communicated non-acceptance of the representation or objection of the appellant with reasons in support thereof, appellant could not prefer an application to the Debt Recovery Tribunal under Section 17 of the Act or to the Court of the District Judge under Section 17A of the Act in respect thereof. In other words, in respect of non-acceptance of representation or objection, appellant has no remedy either before the Debt Recovery Tribunal or before the Court of District Judge. In the circumstances, we accept the contention of the appellant that the writ petition of the appellant could not be rejected at the threshold on the ground that the appellant has an efficacious alternative remedy.

2. …………………………

3. We, accordingly, conclude the matter and refuse to entertain the appeal on the ground that there is nothing on record, wherefrom one can come to a definite conclusion that the accounts of the appellant were not non-performing accounts as on the date of issuance of the notice under Section 13(2) of the Act."

(emphasis supplied)

12. Hon'ble Kerala High Court inM/s K.R.S. Latex (India) Pvt. Ltd. & others v. The Federal Bank Ltd., Kanjirapally & others, AIR 2011 Kerala 78held as under:

"11. Further question to be considered, which is rather basically a preliminary issue, is that whether this court is justified in entertaining this writ petition to examine validity of the sale conducted under the SARFAESI Act. Respondents 1 & 2 had raised a contention that this writ petition is not maintainable since the petitioners have not exhausted the effective, expeditious and alternate remedy available under Section 17 of the SARFAESI Act. It is contended that the petitioners have not stated any reason for not availing such remedy and that having slept over the matter for quite long period, the petitioner could not be allowed to invoke the extraordinary jurisdiction. On the other hand, averments in the writ petition is to the effect that since the petitioners have not filed any appeal within 45 days of the date of taking the measures under Section 13 (4) of the SARFAESI Act, no appeal can be filed challenging the action of sale. Contention of the learned counsel for the petitioner is that if there is violation of statutory provisions such actions are liable to be quashed in a writ petition. When statutory power conferred on an authority is exercised in an illegal and arbitrary manner, in an improper way, which is not as conferred by the legislature, this court is perfectly justified in interference, is the contention. Counsel for the petitioner points out a decision of this court inBetty v. Union Bank of India ((2007 (4) KLT SN 53 (C.No.58)in support of his contention. It was held that this court is justified in interfering with steps initiated under Section 13(4) when there is arbitrary classification of the account as 'NPA' in violation of the guidelines issued by the Reserve Bank. A learned Judge of this court observed that the availability of alternate remedy is not a bar when a patent illegality has been committed and when the Bank has exercised its power in a most arbitrary manner."

(emphasis supplied)

13. Much emphasis has been laid by learned counsel for the petitioner on the fact that the date of NPA is different in different papers. In the considered opinion of this Court, the said argument has hardly any legs to stand, inasmuch as declaration by the bank that the petitioner has become NPA is material and not the date, even if there is slight discrepancy in the same.

14. The next argument of learned counsel for the petitioner is that guidelines of RBI have not been followed. Even if it be conceded for the sake of arguments that it is so, the fact remains that the said guidelines are only in the form of executive instructions and appears to have no statutory backing, although, learned Senior Counsel for the respondent bank stated that even the RBI guidelines have been complied with by the bank. The petitioner itself has not followed the terms and conditions of the hypothecation agreement.

15. The next contention of learned counsel for the petitioner is that the objection/representation of the borrower company has been dismissed summarily without considering the substantial arguments of the petitioner. In reply dated 07.01.2016, the respondent bank stated that only a stock of Rs. 3.5 lacs is available with the petitioner, whereas the respondent bank owes Rs. 73,50,060.28 from the borrower company and has considered the submissions of the borrower company.

16. It is next contended by learned counsel for the petitioner that the declaration by the respondent bank to the effect that the petitioner company has become NPA in terms of Clause 2.1.3 of the RBI guidelines is incorrect. In reply, it is submitted by learned Senior Counsel for the respondent bank that as per the credit account dated 30.06.2015 (Annexure 3 to the petition), the petitioner has sold off the entire stock leaving a balance of only Rs. 3.5 lacs. It is incumbent upon the borrower company to have deposited the money in its account after sale of hypothecated goods and, therefore, Clause 2.1.3 of the RBI has not been flouted. The respondent bank has given well explained reasons while giving its reply to the borrower company on 07.01.2016, which is on record as Annexure 6 to the petition.

17. It has been held by Hon'ble Apex court in Mardia Chemicals Ltd. (supra) that the borrower 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 sub-section (4) of Section 13 of the Act. Relevant portion of para 45 of the aforesaid decision is being reproduced here-in-below for convenience:

" …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. 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 sub-section (4) of Section 13 of the Act."

18. It is the settled law that the secured creditor has obligation to communicate the reasons for non-acceptance of the representation or the objection of the borrower. In the instant case, in reply dated 07.01.2016 (Annexure 6 to the petition), the secured creditor has given sufficient reasons for not accepting the objections of the borrower. There is no violation of statutory provisions so as to quash the notice of the respondent bank in exercise of extra ordinary jurisdiction. It does not appear that the secured creditor has arbitrarily classified the accounts of the borrower company as NPA.

19. Learned Senior Counsel for the respondent bank specifically submitted that Annexure 4 to the writ petition is merely an affixation giving information to the public at large refraining them to enter into the sale purchase of the property and is not a notice under Section 13(1) of 13(2) of the Act.

20. It w

ill be appropriate to reproduce the contents of Annexure 4 here-in-below for reference. The same are excerpted as under: "As this property has been mortgaged to Punjab National Bank BO: B.T. Ganj Roorkee for availing credit facility by the company for Rs. 80.00 lacs. Hence any sale purchase of this property will be treated as void and unlawful. Due to non payment of bank's dues by the borrower, account of the company become NPA, hence all the willing customers are advised to visit BO:B.T. Gang Roorkee for the sale purchase of the property. Chief Manager". 21. There is stipulation in the hypothecation agreement that there should be a margin of 25 per cent in hypothecation of future stocks, raw materials, work in progress, finished goods, consumables stores and spares and all other items acceptable to the bank required for manufacturing, but in the instant case, there is a stock of Rs. 3.5 lacs as against the dues of Rs. 73,50,060/-, although learned counsel for the petitioner objected that his unit is not a manufacturing unit. 22. The respondent bank, no doubt, is required to protect the loan, which it had sanctioned but, at the same time, the respondent bank should adopt a practical and pragmatic approach for which the RBI has framed guidelines which are binding upon them and which are required to be followed meticulously. The bank has not acted against the petitioner contrary to the guidelines issue by RBI. 23. This Court, accordingly, concludes the matter and refuses to entertain the writ petition on the ground that there is nothing on record wherefrom one can come to a definite conclusion that the accounts of the writ petitioner were not NPAs as on the date of issuance of the notice under Section 13(2) of the Act. 24. The writ petition, therefore, fails and the same is hereby dismissed. Petition dismissed.