Oral Judgment: (Naresh H. Patil, CJ.)
1. The appeal is directed against the order passed by the learned Single Judge of this Court in Official Assignee’s Report No.4 of 2018 in Insolvency Petition No.2 of 2016 dated 4th December, 2018.
2. One Mr. Soumit Ranjan Jena stood guarantee to a loan availed of by one M/s. R.B.S. Commtrade Pvt. Ltd. from the appellant Bank. Mr. Soumit Jena accordingly executed an Agreement of Guarantee on 7th May 2013. On 14th June 2013, Mr. Jena deposited the title deeds in respect of the mortgaged property with the appellant Bank. Since the borrower of the appellant Bank defaulted in repayment, the account was declared as non-performing asset. The appellant called upon the insolvent to pay the outstanding balances. Appellant also revoked the facilities granted to the borrower and invoked personal guarantee. In Insolvency Petition No.2/2016, Mr. Jena was held to be insolvent. The Official Assignee thereafter filed reports in said insolvency proceedings.
3. The appellant filed a Notice of Motion bearing No.37/2018 in the Official Assignee’s report in the Insolvency Petition to direct the official assignee to hand over possession and keys of the property which according to the appellant, were the mortgaged flats. Official Assignee filed a report for a direction to the appellant to deposit the title deeds. The appellant placed on record that the appellant is to proceed under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity ‘the SARFAESI Act’). The learned Single Judge by the impugned order dated 4th December, 2018 rejected this Notice of Motion. Hence, the appellant Bank has come in appeal.
4. Ms.Nanghare, the learned Counsel appearing for appellant submits that under the Scheme of the the SARFAESI Act, the appellant is entitled to enforce the security and proceed to take steps to sell the property mortgaged for recovering the dues of the Bank. The appellant thus is entitled to opt out of the insolvency proceedings for enforcing its rights under the SARFAESI Act and accordingly the appellant had intimated the official assignee which request was turned down. In support of the submissions the Counsel has placed reliance on the judgment of the Apex Court in the case of Pegasus Assets Reconstruction P. Ltd. V/s. M/s. Haryana Concast Limited & anr.1 and decision of the Division Bench of Madras High Court in the case of Indian Bank vs. The Official Assignee2.
5. We have heard the learned Counsel for the parties. It is recorded in the order passed by the learned Single Judge that respondent-insolvent was not present when the order was passed and that he is reported as absconding.
6. Mr. Sen, the learned Senior Counsel appearing for the Official 1 Civil Appeal No.3646/2011 2 O.S.A.Nos.130, 131 and 172/2015. Assignee submitted that there cannot be dispute about the legal position that secured creditor is entitled to enforce his secured interest by invoking provisions under the SARFAESI Act by opting out of Insolvency proceedings, but such secured creditor must involve the Official Assignee in all such steps. He also submitted that appellant will have to withdraw its claim lodged before Official Assignee.
7. The learned Single Judge in the impugned order has recorded that the appellant wishes to proceed independently and to stand outside insolvency proceedings. The learned Single Judge has, however, rejected his request on the ground that there is no equitable principle that will permit the appellant Bank to recover its claim in full and even substantially by sale of mortgaged properties to the detriment of the other creditors. The learned Single Judge directed the appellant to deposit the title deeds of the flats in question with the Official Assignee. The question that is raised before us is whether the appellant could be denied its right to stand outside the insolvency proceedings and recover his dues by taking recourse to SARFAESI Act.
8. The Presidency-Towns Insolvency Act, 1909 (for brevity ‘the Act of 1909’) was enacted almost 110 years ago. The Act was brought in force to amend the law regarding governing insolvencies in the Presidency towns. The Act contemplates constitution of the Insolvency Court. It lays down procedure of declaration of insolvency adjudication, administration of property of the insolvents, appointment of Official Assignee and it’s duties.
9. Section 48 of the Act of 1909 refers to right of proof by secured and other creditors to be as per the rules in the Second Schedule. The Second Schedule deals with two parts; (i) proofs in ordinary cases and (ii) proof by secured creditors. Rules 9, 10 and 11 in the second part deal with proof by secured creditors are relevant for the present purpose. They read thus:-
“9. Proof where security realized- If a secured creditor realizes his security, he may prove for the balance due to him, after deducting the net amount realized.
10. Proof where security is surrendered- If a secured creditor surrenders his security to the official assignee for the general benefit of the creditors, he may prove for his whole debt.
11. Proof in other cases- If a secured creditor does not either realize or surrender his security, he shall, before ranking for dividend, state in his proof the particulars of his security, the date when it was given and the value at which he assesses it, and shall be entitled to receive a dividend only in respect of the balance due to him after deducting the value so assessed.
Rule 9 deals with contingency where secured creditor can realize security by proving for the balance due to him after deducting the net amount. If the secured creditor surrenders his security to the Official Assignee for the general benefit of the creditors, he may prove for his whole debt. This contingency is covered under Rule 10. Under Rule 11 it is stated that if a secured creditor does not realize or surrender security it must state in its proof the particulars of his security and when such security was given.
10. The appellant had issued a Demand Notice under the SARFAESI Act by calling upon the borrower, insolvent and Guarantor. The appellant had also taken symbolic possession on 8th December 2014 under Section 13(4) of the SARFAESI Act. In the Notice of Motion taken out before the learned Judge, the appellant had categorically stated that it is choosing to stand outside insolvency proceedings. Therefore, the intention of the appellant to take recourse to the provisions of SARFAESI Act as available to the appellant and to stand outside the insolvency proceedings was manifest and clear.
11. An issue arose regarding the role of secured creditor in respect of insolvency proceedings in the case of Indian Bank before the Division Bench of Madras High Court. The Division Bench held that the role of the Official Liquidator under the Companies Act and Official Assignee are similar and both have to take care of interest of creditors under their respective enactments. The Division Bench held that the power of secured creditor does not get affected in any manner by the provisions of Act of 1909. In the case of Pegasus Assets Reconstruction Pvt. Ltd., the Supreme Court framed a question for considering as to whether a Company Court, directly or through an Official Liquidator exercise control in respect of sale of a secured asset by a secured creditor in exercise of powers available to such creditor under the SARFAESI Act. The Supreme Court was considering divergent views taken by the Punjab and Haryana High Court and High Court of Delhi. The Supreme Court upheld the grievance of the appellant before it that it was wrongfully denied its right to stay outside the winding up in view of provisions of SARFAESI Act. The Supreme Court observed that SARFAESI Act is a special and later Act. It was held that secured creditor is entitled to exercise its rights without any fetters which were erroneously placed upon it by the Company Judge in that case.
12. Applying the ratio to the insolvency proceedings, which are as stated earlier are pari materia with liquidation proceedings, no fetters can be placed on the right of the secured creditor under the SARFAESI Act and further to direct it to deposit the title deeds of the secured assets with the Official Assignee. The view taken that, as an equitable principle, the appellant cannot be permitted to stand outside the insolvency proceedings and realise its dues and it must deposit the title deeds with Official Assignee, cannot be sustained.
13. When we heard the appeal on the earlier date, Mr.Sen had expressed an apprehension that the appellant may not take adequate steps at all in respect of the assets. He had submitted that, in law the appellant may be entitled to stand outside insolvency proceedings, but in the facts of this case there are some apprehensions.
14. In this context the appellant had taken time to file an additional affidavit. Ms.Nanghare has placed an affidavit of Asst. General Manager-Durgamadhab Misra. Paragraph-14 of the said affidavit reads as under:-
14. I say that the appellant will require approximately 10 days for initiating sale process once this Hon’ble Court directs the Official Assignee to handover possession of the secured assets and from there the Appellant would take approximately 5 months to complete the sale process under SARFAESI Act. In the event, the auction fails for non-receipt of any bid above reserve price, the Appellant will repeat the same process
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for conducting further auctions.” By filing an affidavit, the appellant has thus submitted that it will require approximately 10 days for initiating sale process once this Court directs the Official Assignee to handover possession of the secured assets and from there the appellant would take approximately 5 months to complete the sale process under the SARFAESI Act. Ms.Nanghare submitted that the Official Assignee would be informed about steps taken by the appellant and outcome of the sale of the properties. Ms.Nanghare submitted that appellant would withdraw their claim placed before the Official Assignee as the appellant had decided to enforce its rights under the SARFAESI Act and re-submit their claim, in case there is a shortfall of the amount due. We accept these statements and allow the appellant to adopt such a course. 15. In view of the aforestated position, the Appeal is allowed. The impugned order dated 4th December 2018 is quashed and set aside and the appellant is allowed to adopt the course of action indicated as above.