Development Bank of India Limitedby Deputy General Manager & the Authorised Officer115 v. M/s Kamaldeep Synthetics Limitedrep.by its Managing Director V.NandakumarNo.A-1

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 01.02.2007CORAMTHE HONOURABLE MR.A.P.SHAH, THE CHIEF JUSTICEANDTHE HONOURABLE MR.JUSTICE K.CHANDRUW.A.No.1413 of 2006Industrial Development Bank of India Limitedby Deputy General Manager & the Authorised Officer115, Anna SalaiSaidapetChennai 600 015..Appellant-Vs-M/s Kamaldeep Synthetics Limitedrep.by its Managing Director V.NandakumarNo.A-1, Alankar ApartmentNo.12, Raman StreetT.Nagar, Chennai 600 017..RespondentAppeal filed under Clause 15 of the Letters Patent, againstthe order dated 8.9.2006 made in W.P.No.11009 of 2006 to issue aWrit of Certiorari to call for the records of the Respondent inproceedings dated 20.2.2006 and quash the same.For Appellant::Mr.N.V.Srinivasan forM/s N.V.S. & AssociatesFor Respondent::Ms.J.AnandhavalliJUDGMENT(Judgment of the Court was delivered by The Hon'ble The Chief Justice)Admit. Learned counsel appearing for the respondent waivesservice. By consent, the appeal is taken up for hearing. 2. This appeal is directed against the judgment and order ofthe learned single Judge dated 8.9.2006 in Writ Petition No.11009of 2006. https://hcservices.ecourts.gov.in/hcservices/

3. The brief facts leading to the appeal are as follows:-The appellant-IDBI had sanctioned financial assistanceaggregating Rs.400 lakhs (since reduced to Rs.394 lakhs) to therespondent for setting up a new unit for manufacture of texturisedand draw twisted polyester filament yarn with an installedcapacity of 600 tpa, in Uruvaiyaru, Villianur Panchayat inPuducherry and for the said purpose, the respondent had executedloan and security documents. As the respondent defaulted inrepayment of the principal amount of the loan and in payment ofinterest and other charges in terms of the relevant loanagreements entered into with the appellant, the appellant filedrecovery application against the respondent and others before DRT,Chennai, being O.A.No.960 of 1998 for a claim amount ofRs.6,67,56,908/= as on 31.3.98 together with further interest andother charges at agreed rates till realisation. In view of thepromulgation of the Securitisation and Reconstruction of FinancialAssets and Enforcement of Security Interest Act, 2002 (for short,"SARFAESI Act"), whose prime object was to enable the bankingcommunity to speed up the NPA recoveries, the appellant decided totake recourse to the provisions of the SARFAESI Act. Accordingly,the appellant issued the requisite notice under Section 13(2) ofthe SARFAESI Act on 20.12.2005. This notice was replied by therespondent, which was also responded to by the appellant inaccordance with the provisions of Section 13(3-A) of the SARFAESIAct. After verification of compliance of the provisions ofSection 13(9) of the SARFAESI Act, the Authorised Officer of IDBILtd., took possession of the secured assets on February 20, 2006in terms of Section 13(4) of the SARFAESI Act. 4. The legality and validity of notices issued by theappellant-Bank under the SARFAESI is questioned in the presentwrit petition mainly on the ground that without withdrawing theO.A. filed by the appellant before the DRT, invoking of theprovisions of Section 13 of the SARFAESI Act is not permissible,in view of the Division Bench decision of this Court in DigivisionElectronics Ltd., v. Indian Bank (2005 (3) CTC 513). Learnedsingle Judge, following the dicta in the Digivision ElectronicsLtd., v. Indian Bank, has held that the notices issued underSection 13(2) and Section 13(4) of the SARFAESI Act are contraryto Section 19(1) of the SARFAESI Act and are illegal and withoutjurisdiction.5. We have heard Mr.N.V.Srinivasan, learned counsel appearingfor the appellants and Ms.J.Anandhavalli learned counsel appearingfor the respondents. In our opinion, the Division Bench decisionof this Court in Digvision Electronics Ltd., v. Indian Bank(cited supra) is no longer a good law, in view of the decision ofthe Suprmeme Court in Transcore v.Union of India, (2006) 5 CTC753. In Transcore's case, the Supreme Court has clearly held thatthe withdrawal of O.A pending before the DRT is not a pre-condition for taking recourse to the SARFAESI Act. It is for thebank/financial institition to exercise its discretion as to casesin which it may apply for leave and in cases where it may not https://hcservices.ecourts.gov.in/hcservices/ apply for leave to withdraw. Therefore, in the light of thedecision in Transcore's case, the appellant is entitled to proceedin accordance with the provisions of the SARFAESI Act withoutwithdrawal of the O.A pending before the DRT.6. Ms.J.Anandhavalli, learned counsel appearing for therespondent, however, submitted that there has been total non-compliance of Section 13(3-A) of the SARFAESI Act and, therefore,the entire proceedings are vitiated. Learned counsel submittedthat in response to the notice dated 20.12.2005 issued underSection 13(2), a reply letter dated 16.2.2006 was sent by therespondent raising objections to the said notice. The reasons fornon-acceptance of the objections raised were communicated by theappellant-bank only by letter dated February 22, 2006. However,before even communicating the reasons, the appellant-bank issuedthe possession notice on February 20, 2006. According to thelearned counsel, the notice for possession under Section 13(4) ofthe SARFAESI Act could be issued by the bank only after thereasons for non-acceptance of the objections were communicated bythe appellant-bank to the respondent-borrower and therefore,notice under Section 13(4) is illegal and valid. 7. We are unable to accept the submission of the learnedcounsel for the respondent. Section 13(3-A) of the SARFAESI Act,which was incorporated by the Amendment Act 30 of 2004, providesthat if, on receipt of the notice under sub-section (2), theborrower makes any representation or raises any objection, thesecured creditor must consider such representation or objectionand if the secured creditor comes to the conclusion that suchrepresentation or objection is not acceptable or tenable, he shallcommunicate within one week of receipt of such representation orobjection the reasons for non-acceptance of the representation orobjection to the borrower. This provision is obviouslyincorporated in the light of the decision of the Supreme Court inMardia Chemicals Ltd., v. Union of India (2004 (4) SCC 311).8. In Mardia Chemicals case, the Supreme Court held thatunder Section 13(2) of the SARFAESI Act, it is incumbent upon thesecured creditor to serve sixty days notice before proceeding totake action under sub-section (4) of Section 13 of the SARFAESIAct. After service of notice, if the borrower raises anyobjection or places facts for consideration of the securedcreditor, such reply to the notice must be considered with dueapplication of mind and the reasons for not accepting theobjections, howsoever brief that may be, must be communicated tothe borrower. The reasons so communicated shall only be for thepurposes of the information/knowledge of the borrower withoutgiving rise to any right to approach the DRT under Section 17 ofthe SARFAESI Act, at that stage. The Court explained thatcommunication of reasons not to accept the objections of theborrower is for the purpose of his knowledge which would be a stepforward towards his right to know as to why his objections havenot been accepted by the secured creditor, who intends to resortto harsh steps of taking over the management/business of namely, https://hcservices.ecourts.gov.in/hcservices/ the secured assets without intervention of the Court. Such personin respect of whom steps under Section 13(4) of the SARFAESI Actare likely to be taken cannot be denied the right to know thereason for non-acceptance of his objections. This will be inkeeping with the concept of right to know and lender's liabilityof fairness to keep the borrower informed particularly of thedevelopments immediately before taking measures under sub-section(4) of Section 13 of the SARFAESI Act. The Court, however, madeit clear that as per the provisions of the SARFAESI Act, theborrower will not be entitled to challenge the reasonscommunicated or the likely action of the secured creditor at thestage of communication of reasons, unless his right to approachthe DRT as provided under Section 17 of the SARFAESI Act matureson any measure having been taken under sub-section (4) of Section13 of the SARFAESI Act.9. The proviso to sub-section (3-A) of Section 13 of theSARFAESI Act makes it abundantly clear that the reasons socommunicated or the likely action of the secured creditor at thestage of communication of reasons shall not confer any right uponthe borrower to prefer an application to the DRT under Section 17or the Court of District Judge under Section 17-A of the Act.Thus, the basic object of sub-section (3-A) of Section 13 of theSARFAESI Act is to ensure the element of transparency and fairplay in the implementation of the provisions of the SARFAESI Act.Learned counsel for the respondent is unable to demonstrateprejudice or loss that is likely to be caused to the respondent byreason of the possession notice given to it, earlier to thecommunication of the reasons for non-acceptance of the objectionsraised by the borrower. In our opinion, at the most, it wouldamount to a mere irregularity and having regard to the facts andcircumstances of the case, we are satisfied that the appellant-bank has substantially complied with the provisions of Section13(3-A) of the SARFAESI Act.10. In the result, for the foregoing reasons, the appeal isallowed. The order of the learned single Judge is set aside andthe writ petition stands dismissed. This is without prejudice tothe rights of the borrower to approach the DRT under Section 17 ofthe SARFAESI Act, if so advised. If the appeal under Section 17of the SARFAESI Act is preferred by the respondent within a periodof four weeks, the DRT shall decide the appeal on its own meritswithout raising the issue of limitation. Consequently, M.P.No.1 of2006 is closed. No costs. ss/pvSd/Asst.Registrar/true copy/Sub Asst.Registrar https://hcservices.ecourts.gov.in/hcservices/ ToThe Deputy General Manager and Authorised OfficerIndustrial Development Bank of India Limited115, Anna SalaiSaidapetChennai 600 015+ 1 cc to M/s. NVS & Associates, Advocate, SR No.6205+ 1 cc to Mr. J. Anandhavalli, Advocate, SR No.5846W.A.No.1413 of 2006SSV(CO)SR/21.2.2007