1. The SA is laid for declaring the action of defendant bank in initiating proceedings against the applicants under S.13(2) and S.13(4) to be illegal, irregular and improper.
2.1 Adverting to Annexure – D reply dated 24.06.2016 issued by the defendant bank, the Ld. counsel appearing for the applicants would submit that the said reply purported to have been issued as a reply to Annexure – C objection dated 08.06.2016 is not a ‘considered’ order or reply in terms of S.13(3A) of SARFAESI Act. Ld. counsel emphatically contended that S.13(3A) has come to be inserted in the statute pursuant to the judgment rendered in Mardia Chemicals Ltd. v. Union of India case in recognition of borrowers’ valuable right of representation pursuant to their receipt of S. 13(2) demand notice as also the secured creditor’s statutorily ordained duty to ‘consider’ the reply, representation or objection if any to such demand notice.
2.2 Ld. counsel for the applicants placed respectful reliance on the judgment rendered by the Hon'ble High Court of Kerala in the case titled Malabar Sand and Stones (P) Ltd. vs. Catholic Syrian Bank Ltd., reported in 2012 (4) KLT 27: MANU/KE/1577/2012 which reads as follows :
'9. True, there may be circumstances, when some or other lapses may occur on the part of the Bank in proceeding with the property or with regard to the quantum of liability or as to the proper compliance with the statutory prescriptions. This appears to be the circumstances, where 'objection' can be raised and if any such 'objection' is filed/put by the party concerned, of course, it is a matter to be considered by the Bank, under S. 13 (3A) and to communicate the reasons, if the 'objection' is not acceptable. The opportunity conferred upon the party by the Statute enabling to file a 'representation' stands for something else, which need not necessarily constitute any objection as to the 'lapses or failure' on the part of the Bank, but will take in such other circumstances as well, which according to the petitioner/defaulter is relevant for persuading the Bank from not proceeding with further steps under S. 13(4). The adverse circumstances, as faced by the petitioner herein, by way of different litigations before different for a, including this Court and Civil Court, because of the objection raised by the local public and necessity to have obtained police protection; the hurdles placed in procuring the necessary licenses and to start commercial production of the unit, which has come to a reality only on getting the requisite licence issued by the Panchayath on 16.5.2011, followed by immediate 'rainy season' and such other adverse circumstances may be the matters to be considered and dealt with by the Bank, as projected in the 'representation'. In other words, the term 'representation' used in the provision over and above the term 'objection' is not a substitute or cannot considered as otiose under any circumstance. The word has been used consciously by the law makers, with a definite purpose and it has to be given effect to. No word used in the Statute is to be considered as something unnecessary and the Rules of Interpretation require it to be read and understood, as to give meaning/effect to every such word, adopting a course of harmonious interpretation. Rule 3 A of the Security Interest (Enforcement) Rules 2002 brought in the Statute book w.e.f. from 2.2.2007, stipulates under clause (b), that on examining the 'representation' or the 'objection' raised, if the secured creditor is satisfied that there is need to make any changes/modification in the demand notice, he shall modify the notice accordingly and serve notice and pass such other suitable orders as deemed necessary, within the time as prescribed.
10. True, sending of reply showing the reason by itself will not give rise to any cause of action to the defaulter, in view of the 'proviso' to S. 13(3A). But the opportunity given to the party concerned, enabling to file 'representation' or 'objection' is not an empty formality. (Emphasis is mine)
12............Considering the reply stated as given by the respondent Bank vide Ext. P16, upon Ext. P15 'representation' preferred by the petitioner in response to Ext. P14 notice under S. 13 (2), this Court finds that the various points projected by the petitioner in Ext. P15 'representation' have not been properly considered with proper application of mind and reasons, if not acceptable, have not been given with necessary clarity. In the said circumstances, this Court finds that Ext. 16 is not in conformity with the statutory mandate under S. 13(3A) of the SARFAESI Act and Rule 3A of the Security Interest (Enforcement) Rules, 2002 and also the law declared by the Apex Court in Mardia Chemicals case (cited supra). Accordingly, the same is set aside. The respondent Bank is directed to reconsider Ext. P15 and pass a 'reasoned order' and communicate the same to the petitioner within one week from the date of receipt of a copy of this judgment.'
2.3 To buttress the applicants’ definitive contention raised in the SA as regards the illegality committed by the defendant bank in proceeding to take symbolic possession of the ‘secured asset’ without even complying with the essential legal requirement and need for considering their ‘representation’ in terms of S.13(3A), the Ld. counsel for the applicants also placed reliance on the following judgments :
(a) The Hon'ble High Court of Allahabad (Lucknow Bench) in the case titled Malhotra Tractors & anr. v. State Bank of India, reported in AIR 2009 All 150: MANU/UP/1536/2008 held as follows:
'5. The provisions contained in Section 13(3A) of the Act are mandatory in nature and the Bank as well as the authority has no right to proceed in violation of the provisions contained in Sub-section (3A) of Section 13 of the Act. It is open to the authorities to proceed in accordance with the provisions contained in Section 13(4) of the Act only after the representation or objection filed by the borrower or guarantor is decided. Needless to say that while deciding the objection, it shall be incumbent upon the authorities to pass a speaking or reasoned order on the basis of material on record. ................... We are of the view that the respondents have no right to proceed with the recovery proceedings unless they decide the objection or representation of the borrower or guarantor keeping in view the observations made hereinabove and the provisions contained in Section 13(3A) of the Act.
6. In view of the above, the writ petition is finally disposed of directing the respondents Bank to decide the petitioner's representations keeping in view observations made hereinabove and the mandatory provisions contained in Section 13(3A) of the Act by passing a speaking and reasoned order within a period, of two months from the date of receipt of a certified copy of this order and communicate the decision.'
(b) The Hon'ble High Court of Bombay in the case titled M.R. Gawai Enterprises v. Vidarbha Urban Co-operative Bank Limited and another reported in MANU/MH/0650/2004 held as follows:-
'5. In view of the above referred observations of the Apex Court, it is evident that after service of notice under Section 13(2), if the borrower raises any objection or places facts for consideration of the secured creditor, such as respondent No. 1, such objection/reply to the notice must be considered with due application of mind and the reasons for not accepting the objection, howsoever brief they may be, must be communicated to the borrower.'
(c) The Hon'ble High Court of Karnataka in the case titled Mrs. Sunanda Kumari and another v. Standard Chartered Bank previously known as ANZ Grindlays Bank, represented by its Authorised Officer reported in MANU/KA/1014/2006 held as follows:-
'5. ........Sub-section (3A) casts a duty on the secured creditor to consider the representation made or objection raised by the borrower and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he is bound to communicate to the borrower the reasons for non-acceptance within one week of receipt of the representation or objection. Thus, Sub-section (3A) confers on the borrower a right to know the reasons for the non-acceptance of his representation or objection by the secured creditor. Hence the secured creditor is statutorily bound to consider the borrower's representation or objection and if the representation or objection is not tenable or acceptable, he is also bound to communicate the reasons for such non-acceptance. If the borrower does not receive any communication from the secured creditor conveying the reasons for non-acceptance of the objection, he is entitled to presume that the secured creditor has found the representation acceptable and the objection tenable. Since the respondent-bank failed to discharge its statutory obligations under Sub-section (3A) of Section 13 of the Act, the action initiated by the respondent under Sub-section (4) of Section 13 and Section 14 is illegal and irregular.'
2.4 Ld. counsel appearing for applicants wherefore sought the Annexure – B demand notice dated 26.04.2016 and Annexure – H possession notice dated 07.07.2016 issued by the defendant bank to be set aside, holding them to be illegal for the aforestated primordial reason.
3. Mr. Muhammed Navas Ld. counsel for the defendant bank would submit that as the defendant bank had concededly issued a reply dated 24.06.2016 to the applicants’ Annexure – C objection dated 08.06.2016 within the time stipulated under law and the same has come to be filed by the applicants themselves in their SA as Annexure-D, it is now not open for them to contend as if their reply did not receive the required consideration and communication of the decision thereof by the defendant bank. Ld. counsel would submit that since none of the objections raised by the applicants in their Annexure – C reply dated 08.06.2016 were found tenable, the bank had in its Annexure – D reply held their objections/reply to be untenable entitling them to surge ahead with their recovery measures in accordance with law. Annexure D reply dated 24.06.2016 which is a short letter is extracted out below:-
Re: Our Demand Notice dated 26.04.2016 under S. 13(2) of SARFAESI.
Ref: your letter dated 08.06.2016.
With reference to the captioned subject we wish to inform you that while going through the contentions raised by you against our Demand notice the undersigned observed that objections raised by you in your representation is not tenable.
Under such circumstances you are advised to pay the overdue amount in a stipulated time as mentioned in our Demand Notice (Sarfaesi) and further course of action under Sarfaesi will continue.
Chief Manager and Authorised Officer
1. M/s. Swapnil Hosieries and Textile Manufacturing Company Pvt. Ltd.(Borrower), Door No. 34/562, N.H. Bypass, Padivattom, Kochi – 682 024.'
4.1 While the 1st applicant in this case had come out with Annexure-C reply/objection dated 08.06.2016 disputing the creation of equitable mortgage by deposit of title documents disentitling the bank to invoke S.13(2) and S. 13(4) of the SARFAESI Act and by raising definitive contentions as regards the bank’s initiation of action against RBI guidelines, the non-maintainability of the proposed SARFAESIA proceedings in respect of the loan sanctioned to the individuals under CGTSME scheme, the non-execution of documents by the applicant Nos. 2 and 3 herein as also one Smt. Sindhu Unnikrishnan, the bank’s demanding of an exorbitant amount not in accordance with RBI guidelines, the closure of a term loan of Rs. 10 lakhs by which the property was originally purchased and so on, Annexure-D reply notice is seen to have been issued unmindful of the duty of secured creditor bank to consider and pass a reasoned order on such representations of the borrower. Scanning through the defendant’s Annexure-D reply extracted supra, the Tribunal finds that it does not meet out the mandatory requirement of law embedded in S.13(3A) which came to be inserted in the statute with a sacrosanct object of recognizing the borrower’s valuable right of representation upon bestowing a corresponding statutory duty on the secured creditor bank to consider and communicate its reasons thereof prior to it proceeding with their SARFAESIA measures contemplated under S.13(4).
4.2 Giving a purposive interpretation to the legislative intent and rationale lying behind the insertion of S.13(3A) requiring the secured creditor to ‘consider’ the representation or objection by the borrower in recognition of his valuable right of representation, this Tribunal is unable to appreciate Annexure D reply given by the defendant bank to be such a ‘consideration’ or reply as mandated under law. The defendant bank which has been conferred with enormous powers under SARFAESI Act to enforce its security interest without the intervention of any court or Tribunal, at the same time is expected to strictly act in accordance with the procedures and mandatory legal requirements of the Sections and Rules contemplated under SARFAESI Act. The secured creditor is bestowed with a statutory duty to ‘consider’ the representation or objections so received from the borrower of the applicant’s sort and if it would come to a conclusion that the said representation or objection is untenable, it has a further duty to communicate its reasons for non acceptance of such representation of the borrower. The said statutory function is not to be discharged by the secured creditor or Authorised Officer in a casual manner.
4.3 On a conspectus of Annexure-D reply, what is discernible is that the defendant bank is seen to have issued a cryptic order not containing any reasons or justification for non-acceptance of the applicants’ Annexure-C reply/objection dated 08.06.2016. The Tribunal is of the view that though the secured creditor is not precluded from coming out with a short letter or brief reply, the said reply issued under S.13(3A) should appear to be one emanating as a consequence of its ‘consideration’ of the representation and such a reply or order is required to be a ‘reasoned one’ however brief or short it may be. Going by the tenor of Annexure-D reply it is to be necessarily held that the said reply in any respects cannot be considered to be a ‘reasoned order’ which the defendant bank was required to pass and communicate on due consideration of the borrower’s objection or representation and in arriving at such an inevitable conclusion the Tribunal stands fortified by the judgment rendered by the Hon'ble High Court of Kerala in the case titled Malabar Sand and Stones (P) Ltd. v. Catholic Syrian Bank Ltd. extracted supra.
4.4 It would be profitable to cull out and reproduce the relevant paras of the landmark judgment rendered by the Hon’ble Apex Court in the case titled Mardia Chemicals v. Union of India reported in 2004(2) KLT 273:MANU/SC/0323/2004 which recognizes in unequivocal terms the valuable right available to the borrower to submit the reply or objection to a notice issued under S.13(2) of the Act and the obligation imposed on the secured creditor to consider such objections on its due application of mind. Accordingly it is extracted out below:
'45. In the background we have indicated above, we may consider as to what forums or remedies are available to the borrower to ventilate his grievance. 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 measures may or may not be taken under sub-section (4) of Section 13 in case of non- compliance of notice within 60 days. The creditor 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. Such reasons, overruling the objections of the borrower, 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 not accepting the objections taken by the secured borrower may not be taken to give an 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 Debt 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.
46. We are holding that it is necessary to communicate the reasons for not accepting the objections raised by the borrower in reply to notice under Section 13(2) of the Act more particularly for the reason that normally in the event of non- compliance with notice, the party giving notice approaches the court to seek redressal but in the present case, in view of Section 13(1) of the Act the creditor is empowered to enforce the security himself without intervention of the Court. Therefore, it goes with logic and reason that he may be checked to communicate the reason for not accepting the objections, if raised and before he takes the measures like taking over possession of the secured assets etc.
47. This will also be in keeping with the concept of right to know and lender's liability of fairness to keep the borrower informed particularly the developments immediately before taking measures under sub
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-section (4) of Section 13 of the Act. It will also cater the cause of transparency and not secrecy and shall be conducive in building an atmosphere of confidence and healthy commercial practice. Such a duty, in the circumstances of the case and the provisions is inherent under Section 13(2) of the Act.' (Emphasis is mine) 4.5 The Tribunal respectfully reminisces of the judgments of the Hon’ble High Court of Andhra Pradesh in the case titled Sravan Dall Mill Pvt. Ltd. v. Central Bank of India (MANU/AP/0331/2009), the Hon’ble High Court of Jharkand in the case titled M/s. Tetulia Coke Plant Pvt. Ltd. v. Bank of India (MANU/JH/0686/2012), the Hon’ble High Court of Orissa in the case titled Krushna Chandra Sahoo v. Bank of India and other (MANU/OR/0388/2008), the Hon’ble High Court of Chhattisgarh in the case titled Anil Kumar Agarwal v. ICICI Bank and another (MANU/CG/0179/2010) and the Hon’ble High Court of Calcutta in the case titled Smt. Suchanda Chowdhury v. UCO Bank and others (MANU/WB/0787/2010) wherein also the said legal position stood reiterated and reaffirmed. 4.6 In view of the foregoing discussion and reasons, the Tribunal has arrived at a definitive finding that Annexure ‘D’ reply dated 24.06.2016 issued by the defendant bank is not in conformity with S.13(3A) of the Act. Wherefore, the SARFAESIA measures proceeded with by the defendant bank in pursuance of Annexure-B demand notice dated 26.04.2016 has to fall and accordingly Annexure-B demand notice dated 26.04.2016, Annexure -D reply dated 24.06.2016 & Annexure -H possession notice dated 07.07.2016 are set aside directing the defendant bank not to mulct the borrowers with costs or expenses incurred for issuing, publishing and affixing of the said statutory notices and if by now it is so debited, necessary reversals of such entries be given by it to the loan account of the borrowers before surging ahead with its further SARFAESIA measures. There is however no rub or bar for the defendant bank to surge ahead with its SARFAESIA measures pursuant to issuance of a fresh demand notice, of course in accordance with law. The above SA thus stands disposed of as aforesaid.