V.Shanmugam v. Union Bank of India Nungambakkam Branch No.37, College Road Chennai 600 006

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE : 25.02.2008CORAMTHE HONOURABLE MR. JUSTICE S.J.MUKHOPADHAYAANDTHE HONOURABLE MR. JUSTICE M.VENUGOPALW.A. NO. 178 OF 2008ANDM.P. NO. 1 OF 2008V.Shanmugam.. Appellant- Vs -Union Bank of IndiaNungambakkam BranchNo.37, College RoadChennai 600 006... RespondentWrit Appeal filed against the order dated 19th Dec., 2007,passed by learned single Judge in W.P. No.19445/07.W.P.No.19445/2007 presented under Article 226 of the Constitutionof India to issue a Writ of Mndamus, forbearing the respondent fromproceeding under Section 13(4) of the Securitigation andReconstruction of financial assets and enforcement of securityinterest (SARFAESI) Act, without honouring the petitioner's onetime settlement (OTS) offer accepted by the respondent through theletter dated 29.1.2007 in furtherance of which the petitionereffected the payment of Rs.7.5 lacs demanded by the Respondent on13.3.2007 and 29.5.2007For Appellant: Mr. K.M.Vijayan, SC, for M/s.Ahmad AssociatesFor Respondent: Mr. N.V.Srinivasan, SC, for M/s.N.V.S. AssociatesJUDGMENTS.J.MUKHOPADHAYA, J.The appellant has challenged order dated 19th Dec., 2007,passed by learned single Judge in W.P. No.19445/07. By the saidorder, learned single Judge, while held that there is substantialcompliance of provision u/s 13 (3-A) of the Securitisation and https://hcservices.ecourts.gov.in/hcservices/ Reconstruction of Financial Assets and Enforcement of SecurityInterest Act (hereinafter referred to as 'SARFAESI Act'), dismissedthe writ petition.2. The main plea taken in the appeal, as argued by the learnedsenior counsel for the appellant, is that the respondent, UnionBank of India (hereinafter referred to as the 'Bank'), having nottaken any decision u/s 13 (3-A) of the SARFAESI Act within oneweek, had no jurisdiction to take steps u/s 13 (4) of the said Act.3. Though learned single Judge made detailed discussion withregard to the facts as was highlighted by the appellant, it is notnecessary to discuss all the facts, except the relevant ones asnoticed hereunder.The respondent-Bank had extended loan of Rs.3 lakhs toM/s.Adworld, a partnership firm. The firm subsequently started aquarry business in Andhra Pradesh under the name and style of"Karvin Corporation". The account of the said partnership firm wasalso opened with the respondent-Bank. While accounts of both thefirms were being operated with various financial facilities, theaccounts were classified by the bank as 'NPA' in 1996. On 1st Oct.,1997, the outstanding of M/s.Adworld was arrived at Rs.20,35,000/=.On 31st March, 1998, a sum of Rs.3,37,660/= was repaid, butremaining amount remained due. According to the appellant, entirebook balance of M/s.Adworld was remitted by effecting a totalpayment of Rs.17,85,000/= on 17th May, 1999 as full and finalsettlement of NP amount, but the respondent-bank, arbitarilyadjusted a sum of Rs.5 lakhs towards penal interest and made wrongdebit of Rs.5 lakhs on the said account. In effect, the NPAaccount continued to exist.The bank filed one O.A. No.118/02 before Debts RecoveryTribunal (hereinafter referred to as 'DRT') against the two firms,the partners and guarantors for total sum of Rs.1,03,86,178.78inclusive of interest upto 8th March, 2002. It is alleged thatcertain property already sold were also wrongly included as 'B'Schedule property in the said application. The bank filed anapplication, I.A. No.139/03 before DRT-I seeking to amend O.A.No.118/02 pertaining to wrong inclusion of 'B' Schedule property,which was allowed on 10th March, 2005.Further case of the appellant is that on 10th Nov., 2006, theborrower had a meeting with the Bank's Asst. General Manager(Recovery) from Mumbai and other executives at the Regional officeat Broadway, Chennai. In the said meeting, an OTS offer was madeby the borrower for Rs.25 lakhs, but the AGM insisted forremittance of Rs.30 lakhs towards OTS. Subsequently, when the bankissued notice u/s 13 (2) with a demand of Rs.1,47,11,309.73together with interest @ 17.75% on the NPA account of "Karvin https://hcservices.ecourts.gov.in/hcservices/ Corporation" and similar notice for a sum of Rs.36,06,202.94together with interest @ 15.75% p.a. in respect of NPA account ofAdworld, the appellant forwarded a letter to the bank on 27th Jan.,2007, expressing willingness to pay Rs.30 lakhs as OTS before 10thMarch, 2007 and requested the bank's consent for the said offer.The negotiation was going on pursuant to which the borrowerarranged repayment of Rs.5 lakhs and promised to pay the rest ofthe amount of Rs.25 lakhs by 31st March, 2007, but in the meantime,without responding to the appellant's letter dated 13th March, 2007,as the bank was to take action u/s 13 (4), the writ petition waspreferred.4. The main plea taken by the appellant, as referred to above,that the appellant having filed objection/representation u/s 13 (3-A) of the Act against notice issued u/s 13 (2), the bank havingfailed to take and communicate decision within one week, no actioncould be taken by the bank against the appellant u/s 13 (4).5. Learned counsel appearing on behalf of the appellantsubmitted that the time frame of one week as prescribed u/s 13 (3-A) being mandatory, on the basis of subsequent decision it cannotbe held to be substantial compliance of Section 13 (3-A) and,thereby, learned single Judge failed to notice the same. He placedreliance on a Division Bench decision of this Court in I.D.B.I.Ltd. - Vs – Kamaldeep Synthetics Ltd. reported in 2007 (2) CTC 397,wherein the Court made the following observation :-"9. The Proviso to sub-section (3-A) of Section13 of the SARFAESI Act makes it abundantly clearthat the reasons so communicated or the likelyaction of the secured creditor at the stage ofcommunication of reasons shall not confer any rightupon the borrower to prefer an application to theDRT under Section 17 or the Court of District Judgeunder Section 17-A of the Act. Thus, the basicobject of sub-section (3-A) of Section 13 of theSARFAESI Act is to ensure the element oftransparency and fair play in the implementation ofthe provisions of the SARFAESI Act. Learnedcounsel for the respondent is unable to demonstrateprejudice or loss that is likely to be caused tothe respondent by reason of the possession noticegiven to it, earlier to the communication of thereasons for non-acceptance of the objections raisedby the borrower. In our opinion, at the most, itwould amount to a mere irregularity and havingregard to the facts and circumstances of the case,we are satisfied that the appellant-bank hassubstantially complied with the provisions ofSection 13 (3-A) of the SARFAESI Act." https://hcservices.ecourts.gov.in/hcservices/ It was submitted that the aforesaid decision cannot be reliedupon in the present case as no substantial compliance was made bythe respondent bank, having not passed any order within one weekfrom the date of receipt of objection.6. Learned counsel for the bank submitted that the aforesaidissue is not required to be determined in the present case.According to him, after notice issued u/s 13 (2), the appellant didnot choose to prefer any representation nor filed any objection asrequired u/s 13 (3-A). In absence of such representation, for non-payment of the amount, after 60 days it was open to the bank totake steps u/s 13 (4).Counsel for the bank placed reliance on a Division Benchdecision of this Court in Tamil Nadu Industrial InvestmentCorporation Ltd. - Vs – Millenium Business solutions Pvt. Limited &Anr. reported in 2005 (1) LW 58. In the said case, the Court heldas follows :-"7. In our considered opinion it is not properfor the Court to interfere in such matters relatingto recovery of loans. Such matters are contractualin nature and writ jurisdiction is not the properremedy for this. A writ lies when there is anerror of law apparent on the face of the record, orthere is violation of law. No writ lies merely fordirecting one time settlement or for directing re-scheduling of the loan or for fixing instalments inconnection with the loan. It is only the bank orthe financial institution which granted the loanwhich can re-schedule it or fix one time settlementor grant instalments. The Court has no right underArticle 226 of the Constitution to direct grant ofone time settlement or for re-scheduling of theloan, or to fix instalments."7. We have heard the parties, perused the impugned order andthe records produced by the appellant.8. It appears that notices u/s 13 (2) were issued on 2nd Jan.,2007. After the said notice, the appellant, as borrower, made norepresentation nor raised any objection as stipulated u/s 13 (3-A)of the Act. A letter was merely issued on 27th Jan., 2007, whereby,giving reference to a meeting held on 10th Nov., 2006, the borrower-appellant informed that they are now accepting the offer to settlethe dues of both the firms at Rs.30 lakhs as one time settlement asagreed by the AGM (Recovery) Mumbai. Pursuant to the said letter,the correspondence continued between the bank and the petitionervide letters dated 29th Jan., 2007, 12th March, 2007, etc., butfinally no such settlement was arrived at between the parties. https://hcservices.ecourts.gov.in/hcservices/ In the present case as we find that the appellant has notfiled any objection/representation against the notice u/s 13 (2) asrequired u/s 13 (3-A) of the Act, and, therefore, the question ofdeciding such representation/objection by the bank within one weekdoes not arise. On completion of 60 days period, as per Section 13(2), it was open to the bank to proceed u/s 13 (4).9. In view of the aforesaid finding, we are not inclined tointerfere with the order dated 19th Dec., 2007, passed by learnedsingle Judge. In absence of merit, the writ appeal is dismissed.Consequently, connected miscellaneous petition is also dismissed.But there shall be no order as to costs.GLNSd/-Asst. Registrar./true copy/Sub Asst. Registrar.ToUnion Bank of IndiaNungambakkam BranchNo.37, College RoadChennai 600 006.1 cc to M/s.Ahmed Associates, Advocate, SR.9899jrg (co)dv/3.3. W.A. NO. 178 OF 2008