AJN v. M/s. Rupee Cooperative Bank Ltd

Judgment

- (Per Smt. Ranjana Desai, J.)

1. This petition is filed by Dr. (Mrs.) Rajul Ketan Rajpopat, Proprietress of Dombivli Urology Centre (for short, “the said Centre”). In this petition, there is a challenge to notice dated 26/10/2006 issued by respondent 1-bank under section 13(4) of the Securitisation and Reconstruction of Financial Assets and AJN 2 Enforcement of Security Interest Act, 2002 (for short, “the NPA Act”).

2. Admittedly, on 7/8/1996, the petitioner applied for term loan of Rs.62 lakhs and cash credit facility of Rs.10 lakhs to respondent 1-bank. On 2/11/1997, respondent 1-bank sanctioned the term loan of Rs.60 lakhs. In January, 1997, the said Centre started functioning. On 1/12/1997, the term loan account of the petitioner was categorized as non-performing asset. The NPA Act was enacted and came into force on 21/6/2002. It appears that on 11/9/2002, respondent 1-bank filed recovery proceedings in the Co-operative Court, Mumbai being Case No.CC/V/618 of 2002. We are informed that the said proceedings are still pending. Admittedly, respondent 1-bank has closed its evidence and the witness of the petitioner is in the witness box.

3. On 16/5/2006, respondent 1-bank served its notice under section 13(2) of the NPA Act on the petitioner claiming an amount of Rs.2.44 crores. The petitioner sent its reply dated 13/7/2005, AJN 3 inter alia, raising objection on the ground of limitation. It appears that on 25/8/2006, respondent 1-bank has served another notice on the petitioner. The petitioner sent reply to the said notice again raising, inter alia, objection regarding limitation. On 26/10/2006, the impugned notice came to be issued by respondent 1-bank stating therein that possession of the secured assets would be taken on 15/11/2006 or thereafter. This notice is issued under section 13(4) of the NPA Act.

Aggrieved by this notice, on 13/11/2006, the petitioner has filed the present petition. On 15/11/2006, the respondents were directed to file affidavit in reply and ad-interim relief in terms of prayer clause (c) was granted i.e. the respondents were restrained from taking further action pursuant to the impugned notice. The said ad-interim order continues to operate till date.

5. We have heard, at some length, learned counsel appearing for the petitioner and learned counsel appearing for the respondents. We must at the outset state that our attention was AJN 4 drawn by the learned counsel for the petitioner to the judgment of the Supreme Court in Greater Bombay Co-operative Bank Ltd. v. United Yarn Tex. Pvt. Ltd. & Ors. 2007 (3) Mh.L.J. 434. Learned counsel for the petitioner conceded that this judgment does not state that the provisions of the NPA Act are not applicable to the co-operative banks. He submitted that the co-operative banks are covered by the NPA Act. We, therefore, need not dwell on this issue further.

6. Once the NPA Act is held applicable to the co-operative banks, it is not possible for us to entertain this writ petition because remedy of application/appeal under section 17 of the NPA Act is available to the petitioner.

7. Learned counsel for the petitioner strenuously contended that the present action initiated by respondent 1-bank is barred by limitation. He heavily relied on section 36 of the NPA Act which says that no secured creditor shall be entitled to take all or any of the measures under sub-section (4) of section 13, unless his claim AJN 5 in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963. Learned counsel contended that in the claim filed in the Co-operative Court, the respondents have stated that the cause of action has arisen on 1/4/1999. As per Limitation Act, the limitation would be three years. Therefore, the show cause notice dated 26/8/2006 is clearly issued after the period of limitation. He submitted that even if we take the date on which the NPA Act came into force i.e. 21/6/2002 as the date on which the limitation is said to have started running, even then notice dated 26/8/2006 must be said to have been issued after the expiry of the period of limitation. He submitted that respondent 1 has declared the petitioner' s assets as non performing assets on 1/12/1997. Taking an overall view of the matter, according to learned counsel, the present action is clearly barred by limitation. On the question of limitation, learned counsel relied on the judgment of the Supreme Court in M/s. Transcore vs. Union of India & Anr., AIR 2007 SC 712, where the Supreme Court has observed that under section 36 of the NPA Act, the bank or financial institution is entitled to take steps under section 13(4) of AJN 6 the NPA Act in respect of the financial asset provided it is made within the period of limitation prescribed under the Limitation Act,

1963. He further submitted that remedy provided under section 17 of the NPA Act is not an efficacious remedy inasmuch as the Debts Recovery Tribunal (for short, “DRT”) will not entertain any application unless possession is taken over by the bank. He submitted that the petitioner is running the Urology Centre and if the possession is taken over, serious consequences will ensue. He, therefore, submitted that this is a fit case where this court should entertain the petition and grant relief to the petitioner.

8. As against this, learned counsel for the respondents drew our attention to section 92 of the Maharashtra Co-operative Societies Act, 1960. He submitted that as per section 92(1)(a) of the Maharashtra Co-operative Societies Act, the limitation would commence only on the death of a member or when a member ceases to be a member. In this case, the petitioner continues to be a member. Therefore, there is no question of the application being time barred. As regards the suit filed by the bank is concerned, AJN 7 learned counsel relied on the judgment in Transcore's case (supra) where the Supreme Court has observed that the other remedies provided under the different statutes are supplementary to the action initiated under the NPA Act and doctrine of election has no application. He submitted that therefore, no case is made out for interference of this court with the impugned order.

9. The reasons for enactment of the NPA Act are quoted by the Supreme Court in Transcore's case. They indicate that it is enacted to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith. The NPA Act enables the banks and financial institutions to realise long-term assets, manage problems of liquidity, asset liability mis-match and to improve recovery of debts by exercising powers to take possession of securities, sell them and thereby reduce non-performing assets by adopting measures for recovery and reconstruction. The NPA Act further provides for setting up of asset reconstruction companies which are empowered to take possession of secured assets of the borrower AJN 8 including the right to transfer by way of lease, assignment or sale. The said Act also empowers the said asset reconstruction companies to take over the management of the business of the borrower.

10. In Transcore's case (supra), the Supreme Court was, inter alia, considering whether recourse to take possession of the secured assets of the borrower in terms of section 13(4) of the NPA Act comprehends the power to take actual possession of the immoveable property. We may give the gist of the relevant portion of the Supreme Court judgment : “(a) The DRT Act did not provide for assignment of debts to securitisation companies. The secured assets could not be liquidated in time. The NPA Act was enacted to reduce mounting non-performing assets by empowering banks to liquidate the assets and secured interest. (b) The NPA Act deals with crystallized liabilities. (c) The NPA Act proceeds on the basis that the asset is created in favour of bank which could be assigned to the assets management company which steps into the shoes of the secured creditors. AJN 9 (d) Section 13(2) proceeds on the basis that the borrower is under a liability and his account in the books of account of the bank is classified as sub-standard or doubtful or loss. The NPA Act comes into force only if these two conditions are satisfied. (e) Since section 13(2) deals with liquidation of liability on the basis that the account of the borrower has become non-performing, there is no scope of any dispute regarding liability. (f) The NPA Act does not deal with disputes between the secured creditors and the borrowers but it deals with the rights of the secured creditors interse. (g) Section 13(1) and Section 13(2) of the NPA Act proceed on the basis that the security interest in the bank and financial institution needs to be enforced expeditiously without the intervention of the Court and that enforcement could take place by non-adjudicatory process. The NPA Act provides for recovery of possession by non- adjudicatory process. (h) The NPA Act removes all fetters on the right of the secured creditor. (i) Under section 17(2), the DRT is required to consider whether any of the measures referred to in section 13(4) are in accordance with the provisions of the NPA Act and the Rules made thereunder. (j) If while examining the application under section 17, the DRT comes to the conclusion that any of the measures taken under section 13(4) are not AJN 10 in accordance with NPA Act, it shall direct the secured creditor to restore the possession to the borrower or restore management to the borrower. (k) If the DRT declares that the recourse taken under section 13(4) is in accordance with the provisions of the NPA Act then notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to anyone or more of the measures as specified under section 13(4) to recover his secured debt. (l) Section 17(4) shows that the secured creditor is free to take recourse to any one of the measures under section 13(4) notwithstanding anything contained in any other law for the time being in force, e.g. for the sake of argument if in a given case, the measures undertaken by the secured creditor under section 13(4) come in conflict with the State land revenue law, then notwithstanding such conflict, the provision of section 13(4) shall override the local law. (m) This position stands clarified by section 35 of the NPA Act which states that the provisions of the NPA Act shall override all other laws which are inconsistent with the NPA Act. Section 35 gives an overriding effect to the NPA Act over all other laws, if they are in consistent with it. (n) The dichotomy between symbolic and physical possession does not find place in the NPA Act. (o) Rule 8 of the said Rules deals with the sale of immoveable secured assets. Rule 8 deals with the stage anterior to the issuance of sale AJN 11 certificate and delivery of possession under Rule 9. Rule 9 relates to time of sale, issue of sale certificate and delivery of possession. Till the time of issuance of sale certificate, the authorised officer is like a court receiver under Order XL, Rule 1 of the CPC. The court receiver can take symbolic possession and in appropriate cases, he can take actual possession even prior to the decree. The authorised officer' s powers are greater as security interest is already created in the bank. Hence, under Rule 8, he can take steps to preserve the secured asset till issuance of the sale certificate under Rule 9. Rule 9(6) states that on confirmation of sale, if the terms of payment are complied with, the authorised officer shall issue a sale certificate in favour of the purchaser. Rule 9(9) states that the authorised officer shall deliver the property to the buyer free from all encumbrances known to the secured creditor or not known to the secured creditor. This scheme of the NPA Act therefore does not disclose any dichotomy between symbolic possession and physical possession. (p) Since scheme of section 13(4) read with section 17(3) shows that if the borrower is dispossessed not in accordance with the provisions of the NPA Act, the DRT is entitled to restore status quo ante, it cannot be said that if possession is taken before confirmation of sale, the rights of the borrower to get the dispute adjudicated upon is defeated by the authorised officer taking possession. (q) The disputes which are sought to be avoided by Rule 8 read with Rule 9 of the said Rules are those where third party interests are created overnight and in very many cases those third AJN 12 parties take up the defence of being a bonafide purchaser for value without notice.”

11. It is clear from the above, that the moment loan is granted by a bank interest of the bank is created in the asset. It vests in the bank. In case of default, notice under section 13(2) is required to be given. If any reply is submitted by the borrower, the bank has to consider it and if it does not accept it, it has to communicate the reasons to the borrower. The communication of reasons does not give the borrower or any third person any right to appeal under section 17 at the stage of communication. The banks or the secured creditors' interest and the borrowers liability is crystallized. It is not open to debate. There is no scope for any dispute regarding liability. Section 13(1) and 13(2) proceed on the basis that the security interest in the bank and financial institution needs to be enforced expeditiously without intervention of the court by non-adjudicatory process. Till application under section 17 is made, there is no adjudication of any kind.

12. It is abundantly clear that therefore the notice under section AJN 13 13(4) is issued as per the scheme of the NPA Act to take possession of the secured assets because the liability of the borrower is a crystallized liability. The only remedy available to the borrower is an appeal/application under section 17 of the NPA Act after the possession is recovered. As stated by the Supreme Court in the above case, if the DRT declares that the recourse taken under section 13(4) is not in accordance with NPA Act, it can direct the secured creditor to restore the possession to the borrower but till application under section 17 is made, there is no adjudication of any kind of the borrower' s liability.

13. In Mardia Chemicals Limited v. Union of India, AIR 2004 SC 2371, the Supreme Court has clarified that the remedy under section 17 of the NPA Act is in the nature of original proceeding. It is in lieu of a civil suit. The argument that section 17 of the NPA Act does not provide efficacious remedy because application under section 17 will be entertained after the possession is taken, can never be accepted because that is the scheme of the NPA Act and if the possession is wrongly taken, the DRT can always restore it. AJN 14 The fact that a civil suit is filed by the creditor would also not come in his way and prevent him from taking recourse to the provisions of the NPA Act because section 35 gives the NPA Act an overriding effect. In Transcore's case (supra), it was argued that if the creditor elects to seek remedy under DRT Act, he cannot invoke NPA Act for realizing the secured assets. The Supreme Court held that since there is no repugnancy nor inconsistency between the two remedies, the doctrine of election has no application. The creditor can resort to provisions of both Acts if necessary. On parity of reasoning, therefore, because respondent 1 has filed recovery proceedings in the cooperative court, the action initiated by it under the NPA Act cannot be held to be illegal on that count. In any event, all these questions can be agitated by the petitioner before the DRT and the DRT can deal with it in accordance with law.

14. We are aware that availability of alternative remedy does not preclude us from exercising our jurisdiction if circumstances so demand. In cases of grave injustice, this court can always exercise AJN 15 its jurisdiction. But, such cases are few and far between. No such exceptional circumstances are made out here. We are therefore of the opinion that the petitioner must be relegated to the DRT. He may approach the DRT if he so desires.

15. In the circumstances of the case, in our opinion, the following order will meet the ends of justice.

16. If an application is made by the petitioner under section 17 of the NPA Act, the DRT shall deal with it independently and in accordance with law. Ad-interim relief granted by this court in terms of prayer clause (c) of the petition i.e. direction restraining the respondents from proceeding further with the notice dated 26/10/2006 is vacated. Needless to say that if application for interim relief is made in the application under section 17 of the NPA Act, the DRT will pass appropriate orders thereon independently and in accordance with law.

17. Petition is disposed of in the aforestated terms. AJN 16

18. At this stage learned counsel for the petitioner states that he is desirous of challenging this order in the Supreme Court. In view of this statement, the stay granted by this court is continued for a period of seven weeks. [SMT. RANJANA DESAI, J.] [SMT. ROSHAN DALVI, J.]