w w w . L a w y e r S e r v i c e s . i n


Stan Commodities Pvt. Ltd. through its Managing Director, Pawan Kumar Poddar v/s Punjab and Sind Bank through its Chairman and others

    W. P. (C) No. 1572 of 2007
    Decided On, 27 June 2008
    At, High Court of Jharkhand
    By, THE HON'BLE JUSTICE NARENDRA NATH TIWARI
    For the petitioner:- Ajit Kumar, Advs. For the respondent:- S.L. Agarwal, Advs.


Judgment Text

Narendra Nath Tiwari, J.

1. The petitioner, which is a manufacturing unit of MS Ingots, castings and other still products, had taken loan of Rs. 55 Lacs from the respondents-Punjab and Sind Bank under hypothecation after equitable mortgage in the year 2001 by way of cash credit facility.

2. The petitioner had been paying the amount of accrued interest and submitting the stock statement and other documents as prescribed by the Bank.

3. By letter dated 9.3.04 (Annexure-2), the petitioner was informed by the respondents-Bank that the sale proceeds as well as the stock statement have not been submitted and the same must be submitted to the Bank.

4. The petitioner submitted all the required documents and also explained that the delay was due to illness of the Director (Annexure-3). The petitioner requested the respondents-Bank to resume the transaction.

5. Suddenly the petitioner was served with a notice dated 29.11.04 (Annexure-8) from the respondents-Bank purportedly sent under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'the said Act, 2002'). The notice was addressed to the petitioner and the guarantors. By the said notice the petitioner and the guarantors, jointly and severally, were asked to make the payment and discharge the liabilities amounting to Rs. 51,05,383.88/- with interest w.e.f 1.11.04 with monthly rests, within 60 days from the receipt of the notice. It also mentioned that on failure of the same, the Bank shall take measures under the provisions of Chapter-III of the said Act, 2002 for recovery of the secured dues and in that case, the said persons shall be jointly and severally liable for payment of all costs and other expenses arising there from.

6. Against the said notice the petitioner filed their reply stating, inter alia, that the notice purportedly issued under Section 13(2) of the said Act, 2002 is illegal and without jurisdiction. The petitioner's Unit has been running against the sanctioned limit and at no point of time the petitioner was intimated that his account has been declared as non-performing asset (NPA). Further, even after the declaration of the account as NPA in March 2004, the petitioner was allowed to make transaction from the said account till November 2004 without any break. It has been stated that the petitioner had taken cash credit loan of Rs. 55 Lacs on 12.1.01 for doing his business of manufacturing MS Ingots, castings and other steel products with interest @ 15.75 % per annum. Raw materials, finished and semi finished goods of MS Ingots, plant machinery and scraps were hypothecated. The loan was also secured by way of equitable mortgage in respect of the immovable properties. The Bank had sanctioned Bank Guarantee limit of Rs. 15 Lacs as on 12.1.01, but the same was not utilized. It was well within the knowledge of the Bank that the petitioner's Unit has been running successfully. The interest payable to the Bank was being regularly paid within time. The Bank Officers, on the other hand, always put the petitioner into trouble. There was no occasion for issuing the notice under Section 13(2) of the said Act, 2002. No intimation was given to the petitioner regarding the proposed action and there was no occasion for sending such notice or approaching the Bank. The petitioner, thus, requested the Bank to recall the notice purportedly sent under Section 13(2) of the said Act, 2002.

7. When no order was passed on the said application, the petitioner filed a writ petition being W.P(C) No. 6908/2004 challenging the said notice dated 29.11.04 sent under the said Act, 2002.

8. The said writ petition was disposed of directing the respondents-Bank to consider the objection/representation filed by the petitioner and pass a reasoned order before proceeding under Section 13(4) of the said Act, 2002.

9. The petitioner filed representation dated 14.1.05 before the respondents-Bank regarding compliance of the said order of this Court. It is pertinent to mention here that the said order of this Court was not challenged by the Bank and the same remained binding and final. According to the said order of this Court, the respondents were bound to pass an order under Section 13(3-A) of the said Act, 2002 within one week. But instead thereof the Bank moved the Debts Recovery Tribunal for recovery of their claims under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as 'the said Act, 1993').

10. First proviso to Section 19 of the said Act, 1993 provides that the Bank or financial institution may, with the permission of the Debts Recovery Tribunal, on an application made by it, withdraw the application, whether made before or after the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 for the purpose of taking action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), if no such action had been taken earlier under that Act.

11. The respondents-Bank neither passed any order, as directed by this Court in W.P(C) No. 6908/2004, within the stipulated time frame provided under Section 13(3-A) of the said Act, 2002 nor any permission of the Debts Recovery Tribunal was obtained to withdraw the application for the purpose of taking action under the said Act, 2002.

12. The respondents-Bank without complying with the provisions of Section 13(3-A) of the said Act, 2002, as amended in the year 2004, and read with the first proviso to Section 19 of the said Act, 1993, issued the impugned notice dated 21.2.2007 (Annexure-14). It has been contended by learned Counsel for the petitioner that the impugned notice is illegal and is liable to be quashed.

13. Being aggrieved by the said notice, the petitioner has filed this writ petition praying for quashing the order dated 21.2.07 (Annexure-14) issued by the respondents-Bank and for restraining them from taking any action in furtherance of the notice dated 29.11.04.

14. The respondents-Bank appeared and contested the writ petition. In the counter affidavit filed on behalf of the respondents-Bank, it has been stated, inter alia, that the notice under Section 13(2) of the said Act, 2002 was issued by the authorized officer of the Bank informing the petitioner that his account has become non-performing assets (NPA) on 31.3.04 and under the provisions of Sub-section 13(2) of the said Act, 2002, the Director and guarantors of the petitioner are liable to pay the said amount jointly and severally and discharge the liabilities within 60 days from the date of the notice. The petitioner had challenged the said notice in W.P(C) No. 6908/2004 which was disposed of directing the respondents-Bank to pass a reasoned order on the objection filed by the petitioner in view of the decision of the Supreme Court in Mardia Chemicals Ltd. and Ors. v. Union of India and Ors. : AIR 2004 SC 2371 . By the impugned order, the objection filed by the petitioner has been rejected by the authorized officer of the Bank. The petitioner cannot object to the remedies simultaneously availed by the respondents-Bank.

15. It has been further stated by the respondents that the Hon'ble Supreme Court has ruled in Transcore v. Union of India and Anr. : AIR 2007 SC 712 that if a borrower makes any default in repayment of secured debt and his account in respect of such debt is classified as rming Asset, the secured creditor may require the borrower by notice in writing to discharge his liabilities within 60 days from the date of the notice, failing which the secured creditor shall be entitled to exercise all or any of the rights given under Section 13(4). It has been further held that the provision of Section 13(2) of the said Act, 2002 is not merely a show cause notice, rather it is a notice for payment. The remedies available to the creditor under the said Act of 2002 and DRT Act are complementary to each other and therefore, the doctrine of election has no application to the present case. Withdrawal of the original application pending before the DRT under the provisions of the DRT Act is not a pre-condition for taking recourse to the said act of 2002. It is for the Bank/financial institution to exercise its discretion as to cases in which it may apply for leave and in cases where they may not apply for leave to withdraw. So far as the petitioner's contention of not disposing of his objection/representation within seven days is concerned, no consequence has been provided for not disposing of the objection within seven days, as would be evident from Section 13(3-A) of the said Act, 2002. Even if the representation/objection was not disposed of within the said period, no prejudice was caused to the petitioner, rather it goes against the interest of the Bank. The said provision is, thus, directory. In absence of any consequential provision, the word 'shall' is not mandatory in nature. The purpose and the object of the statute are important for construing the provision, even if the word 'shall' is used in the statute. The petitioner's objection that his account cannot be declared as NPA without affording an opportunity is also without any substance. No hearing is required, if an account becomes NPA under Section 2(o) of the said Act, 2002. The respondents-Bank had valid reason for classifying the petitioner's assets as NPA. The petitioner was requested to regularize the loan account on several occasions. The Bank also asked to furnish the statement of account and raw materials, but the petitioner did not comply with the same. Under that circumstance, the petitioner's account was classified as NPA according to the guideline of the Reserve Bank of India.

16. In view of the rival contentions of the parties, the following points fall for consideration of this Court.

(i) Whether the declaration of the petitioner's account as NPA by the respondents-Bank without giving prior information/opportunity to settle the controversy/doubts regarding classification of account as NPA is justified?

(ii) Whether the respondents-Bank was duty bound to communicate its decision to the petitioner within one week from the date of receipt of his representation/objection, as required under the provision of Section 13(3-A) of the said act, 2002?

(iii) Whether the impugned order/notice dated 21.2.07 (Annexure-14) is valid and legal?

Point No. (i)

17. For the first time in the notice dated 29.11.04 the respondents-Bank informed that the petitioner's account has been declared as non-performing assets (NPA) from 31.3.04. In reply to the said letter, the petitioner specifically stated that it was not earlier intimated by the Bank that the petitioner's account has been declared as non-performing assets w.e.f 31.3.04.

18. Chapter-III of the said Act, 2002 provides for enforcement of security interest. Section 13 has been enacted under the said Chapter. Sub-section (1) of Section 13 begins with non obstante clause and provides that any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or tribunal, by such creditor in accordance with the provisions of this Act, notwithstanding, anything contained in Section 69 or Section 69-A of the Transfer of Property Act, 1882. Sub-section (2) of Section 13 provides that 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).

19. According to the said provision of Section 13(2), for the purpose of giving notice to the borrower for discharge of his liability to the secured creditor, it is a condition precedent that the borrower's account in respect of such debt be classified as non-performing asset by the secured creditor.

20. In the instant case the respondents-Bank has taken the plea that no notice or opportunity of hearing is required for declaring the assets as NPA by the secured creditor. An account becomes NPA itself in view of the definition of non-performing assets under Section 2(o) of the said Act, 2002. Section 2(o) of the said Act, 2002 defines 'non-performing asset' as an asset or account of a borrower which has been classified by a Bank or financial institution a substandard, doubtful or loss asset.

21. It has been stated on behalf of the respondents that the petitioner was requested by the Bank to regularize the Bank Account on several occasions and was directed to furnish the statement of account and raw materials, but the petitioner did not obey the said direction of the Bank and as such the petitioner's account was classified as NPA.

22. The petitioner, on the other hand, has contended that he had complied with each and every direction of the respondents-Bank as would be evident from Annexure-8. It continued transacting with the Bank and there was no occasion for declaring his account as NPA.

23. There is, thus, controversy between the parties on the points as to whether the petitioner complied with the direction of the respondents-Bank or whether the account was classified as NPA due to the irregularities committed by the petitioner.

24. It is clear from the contentions of the Bank that before classifying the petitioner's account as NPA, no information or opportunity of representation was given to the petitioner.

25. It has been contended on behalf of the respondents that the classification of the assets as NPA is done in accordance with the guidelines issued by the Reserve Bank of India which is called as "RBI's prudential norms of income recognition, asset classification and provisioning - pertaining to advances", issued by a circular dated 30.8.2001. The said guidelines have been quoted in paragraph 37 of the decision of the Supreme Court in Mardia Chemicals Ltd. case.

26. The said circular provides that doubts in asset classification due to any reason are to be settled through specified internal channels within one month from the date on which the account would have been classified as NPA as per the guidelines.

27. The respondents have not brought anything on record to show that before classifying the petitioner's account as NPA, there was any settlement of the controversy/doubt regarding classification of the asset or even any information was given to the petitioner before classifying the petitioner's account as NPA.

28. In view of the provisions of the guidelines of the RBI, the petitioner was entitled to be informed and any doubt or dispute was to be settled between the creditor and the borrower through any specific internal channel within one month from the date on which the account would have been classified as NPA. Even if there was no internal channel to settle such dispute/doubt, the petitioner was entitled to be informed and to get an opportunity to explain or represent against the intended classification of his account as NPA.

29. The provision of the guidelines providing for some specific internal channel for settling the doubt in asset classification is akin to the requirement of the principles of natural justice, which according to the Supreme Court in Smt. Maneka Gandhi v. Union of India and Anr. : [1978] 2 SCR 621 must be read and followed even if the provision is silent to that regard. The respondent being a Public Sector Bank are expected to follow the just, fair / prescribed procedure to meet the requirement of law and Article 14 of the Constitution of India.

30. In view of the admitted position that the petitioner was not informed before declaring/classifying his account as NPA and no opportunity of settlement of the controversy/doubts regarding classification of the assets was given for which the petitioner was entitled under the provision of the guidelines for declaring the account as NPA, the declaration of the petitioner's account as NPA cannot be said to be justified. Point No. (i) is decided accordingly.

Point No. (ii)

31. It is an admitted fact that against the notice dated 29.11.04 sent by the respondents-Bank under the provisions of Section 13(2) of the said Act, 2002, the petitioner filed representation dated 4.12.04 raising his objection to the said notice and requesting the respondents-Bank to recall the notice sent under Section 13(2) of the said Act, 2002. It was specifically alleged that the notice was illegal, unjust, prematured and without jurisdiction.

32. Sub-section (3-A) of Section 13 provides that if the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower. The provision of notice under Sub-section (2) of Section 13 and the provision for communication of the decision, if the representation or objection is acceptable or tenable by the creditor, are the first two important steps for proceeding further for enforcement of security interest. Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 runs as follows:

13. Enforcement of security interest.-(1) Notwithstanding anything contained in Section 69 or Section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act.

(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).

(3) The notice referred to in Sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.

[(3A) If, on receipt of the notice under Sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:

Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under Section 17 or the Court of District Judge under Section 17A.]

(4) In case the borrower fails to discharge his liability in full within the period specified in Sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:

(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset;

[(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset:

Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:

Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt;]

(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;

(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.

(5) Any payment made by any person referred to in Clause (d) of Sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower.

(6) Any transfer of secured asset after taking possession thereof or take over of management under Sub-section (4), by the secured creditor or by the manager on behalf of the secured creditors shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.

(7) Where any action has been taken against a borrower under the provisions of Sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests.

(8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.

(9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to Sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors:

Provided that in the case of a company in liquidation, the amount realized from the sale of secured assets shall be distributed in accordance with the provisions of Section 529A of the Companies Act, 1956 (1 of 1956):

Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realize his security instead of relinquishing his security and proving his debt under proviso to Sub-section (1) of Section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of Section 529A of that Act:

Provided also that the liquidator referred to in the second proviso shall intimate the secured creditors the workmen's dues in accordance with the provisions of Section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that Section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator:

Provided also that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount if any, deposited by the secured creditor with the liquidator:

Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any.

Explanation.- For the purposes of this sub-section,-

(a) "record date" means the date agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding on such date;

(b) "amount outstanding" shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor.

(10) Where dues of the secured creditor an not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower.

(11) Without prejudice to the rights conferred of the secured creditor under or by this Section, secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in Clauses (a) to (d) of Sub-section (4) in relation to the secured assets under this Act.

(12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorized in this behalf in such manner as may be prescribed.

(13) No borrower shall, after receipt of notice referred to in Sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor.

33. On plain reading of Section 13(2) of the said Act, 2002, it is clear that the purpose of serving notice on the borrower under the said provision is to give an opportunity to him to explain the reason as to why the steps as provided under Section 13(4) be not taken against him in case of non-compliance with the notice within 60 days.

34. The provision of Section 13(3-A) requires that if the borrower makes any representation or raises any objection, the secured creditor must consider the same by applying its mind to the objection filed by the borrower. If the secured creditor comes to the conclusion that the objection is not acceptable or tenable, he shall communicate the reason for non-acceptance of the objection/representation within one week of receipt thereof. The consideration on such objection by the secured creditor must be just and fair. A borrower, against whom the steps under Section 13(4) of the said Act, 2002 is to be taken, cannot be denied the right to know the reason for not accepting the objection. The borrower must know as to why the objection raised by him has been rejected and as to why the harsh action, as envisaged under Section 13(4) of the said Act, would be taken by the secured creditor. It is, thus, requirement of the rule of fair play to communicate the reason for not accepting the objection raised by the borrower.

35. Learned Counsel for the petitioner submitted that any action by the secured creditor under Section 13(4) of the said Act, 2002 without informing the reason to the borrower for not accepting the objection, is wholly unfair, unjust and is liable to be intervened by this Court.

36. Learned Counsel referred to and relied upon the decision of the Hon'ble Supreme Court in M/S Mardia Chemicals Ltd. (supra). In the said case the Hon'ble Apex Court while dealing with several provisions of the said Act, 2002, considered the provisions of Section 13(2) and 13(4) and held as follows:

The purpose of serving a notice upon the borrower under Section 13(2) of the Act is that a reply may be submitted by him explaining the reasons as to why measures may or may not be taken under Section 13(4) in case of non-compliance with 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 Section 13(4).

x x x x x x x x x x x x x x x
Once a duty to meaningfully consider the objections raised by the borrower in reply to a notice under Section 13(2) 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 reasons for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under Section 13(4).

x x x x x x x x x x x x x x x
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. 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 and would certainly provide guidance to 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 Section 13(4). It will only be in fulfilment 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.

x x x x x x x x x x x x x x x
It is necessary to communicate the reasons for not accepting the objections raised by the borrower in reply to the 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. 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 of the developments immediately before taking measures under Section 13(4) of the Act. It will also cater to 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.

37. In view of the said decision of the Supreme Court, it is not the desertion of the creditor to communicate or not communicate the non-acceptance of the representation/objection.

38. Section 13(3-A) of the said Act, 2002 not only provides for communication of reason for not accepting the objection/representation of the borrower, it also puts a time frame of one week for such communication, if the creditor concludes that the same is not acceptable or tenable.

39. In the instant case, there was no communication by the respondents-Bank within the prescribed time that the representation/objection of the petitioner-was not acceptable or tenable. In view of the provision of Section 13(3-A), it was mandatory on the part of the respondents-Bank to communicate its decision on the petitioner's representation/objection within the stipulated period of one week of the receipt of the petitioner's representation/objection, which has not been complied with. The Point No. (ii) is decided in affirmative.

Point No. (iii)

40. While dealing with the Point No. (ii), it is clear that the provisions of Section 13(3-A) is not an empty formality. The secured creditor is bound to follow the provisions and the procedures laid down under the said Section before proceeding to take measures as provided under Section 13(4) of the said Act 2002. In the instant case the provisions of Section 13(3-A) have not been complied with. Against the notice Issued under Section 13(2) dated 29.11.04 (Annexure-8), the petitioner had filed his representation/objection dated 4.12.04 (Annexure-9). In the said objection the petitioner has categorically stated that his account cannot be declared as NPA as he had been continuing transaction with the respondents-Bank regularly.

41. When the respondents-Bank did not give any reply to the same, the petitioner had filed W.P(C) No. 6908/2004 apprehending wrongful action. This Court had disposed of the said writ petition directing the respondents-Bank to consider the objection filed by the petitioner and take decision by passing a reasoned order before proceeding under Section 13(4) of the said Act, 2002.

42. The respondents-Bank in case of non-acceptance of objection/representation was duty bound to communicate the reason within one week, but the same has not been admittedly done.

43. On not receiving the Bank's reply communicating the reason for not accepting the objection/representation, the petitioner has reason to believe that the Bank accepted his representation/objection and abandoned the action as envisaged under Section 13(4) of the said Act, 2002.

44. But the respondents-Bank moved the Debt Recovery Tribunal against the petitioner under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Section 19 of the said Act, 1993 provides sufficient safeguard to the petitioner.

45. According to the first proviso to Section 19, the Bank cannot proceed against the petitioner under the Securitisation Act, 2002 unless as prescribed in the said provision. In the instant case the Bank having not communicated the reason for not accepting the petitioner's objection/representation within the stipulated period, as required under Section 13(3-A) of the said Act, 2002, deemed to have accepted the petitioner's representation and waived its right to proceed further or to take measures as provided under Section 13(4) of the said Act, 2002.

46.

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The first proviso to Section 19 of the Recovery of Debts Due to Banks & Financial Institutions Act, 1993 reads as follows: Provided that the Bank or financial institution may, with the permission of the Debts Recovery Tribunal, on an application made by it, withdraw the application, whether made before or after the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 for the purpose of taking action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), if no such action had been taken earlier under that Act. 47. In view of the said provision, the respondents-Bank cannot be allowed to reenter into the action under the provisions of the Securitisation Act, 2002 as contemplated by the impugned notice dated 29.11.04 (Annexure-8). 48. Learned Counsel appearing on behalf of the respondents submitted that the Bank can invoke the provision of the said Act, 2002 even if the remedy under the DRT Act, 1993 is taken resort to. Learned Counsel placed reliance on the decision of the Hon'ble Apex Court in Transcore v. Union of India (supra). In the said decision, the Supreme Court has held that the Banks or Financial Institutions having elected to seek their remedy in terms of D.R.T Act, 1993 can still invoke the NPA Act, 2002 for realizing the secured assets without withdrawing or abandoning the O.A filed before the DRT under the DRT Act. It is for the Bank/financial institution to exercise its discretion as to cases in which it may apply for leave and in cases where they may not apply for leave to withdraw. The remedies under NPA Act and DRT Act are complementary to each other and, therefore, the doctrine of election has no application to the present case. 49. On perusal of the said decision of the Supreme Court, it is clear that, there the facts were entirely different. In paragraph 23 of the said decision, the Hon'ble Supreme Court after discussing the provisions of Sections 13(2) 13(3) & 13(3-A) has held that the notice under Section 13(2) is not merely a show cause notice, rather it is a notice of demand which constitutes an action. Section 13(3-A) of the said Act, 2002 provides for an opportunity to the borrower to make representation to the secured creditor before invoking Section 13(4) of the said Act, 2002. The conditions and the steps to be taken are required to be followed. 50. Nowhere it has been held that even if the representation/objection filed by the petitioner was not replied within the stipulated time, as required under Section 13(3-A) of the said Act, 2002, the Bank/F.I can proceed and take recourse to the provisions as provided under Section 13(4) of the said Act, 2002. 51. The measures prescribed under Section 13(4) of the said Act, 2002 being harsh in nature, the same must be preceded by the mandatory requirement of Section 13(3-A) of the said Act, 2002. The Point No. (iii) is decided accordingly. 52. In view of the above discussions, it is held that the respondents-Bank cannot now revive the action and proceed on the basis of the notice dated 29.11.04 and revert back to the action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The impugned notice seeking revival of the said action is wholly without any legal basis and is unsustainable. The impugned notice dated 21.2.07 as contained in Annexure-14 is, hereby, quashed. This writ petition is allowed to that extent. It is admitted by the patties that the Bank has already proceeded against the petitioner under the provisions of the DRT Act and the petitioner has also appeared in his O.A. Any observation made in this writ petition shall not in any way prejudice to either party and the respondents are at liberty to proceed against the petitioner in accordance with the provisions of the DRT Act. No order as to Cost.
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