Canara Bank vs M/s Maruti Nandan Foods Products Pvt. Ltd. & Ors.

JUSTICE R. D. KHARE, CHAIRPERSON

The present appeal has been filed under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the SARFAESI Act”) against the impugned order dated 02.03.2022 passed by the Tribunal below, whereby the I.A. No. 19 of 2022 filed by the respondents-borrowers in TSA No. 01 of 2021 has been allowed.

The brief facts of the case are that the respondent no. 1-company was granted various credit facilities, which was secured by personal guarantee of respondents no. 2 & 5 and also by collateral security of immovable properties of respondents no. 1 & 5. Since the borrowers did not maintain the financial discipline, therefore, the accounts were classified as NPA. The appellant-Bank filed an O.A. under section 19 of the RDB Act, 1993 for recovery of Rs.22,98,59,152/-, which was decreed vide judgment and order dated 10.02.2018 against the respondents and pursuant to it the recovery certificate was issued and instituted as RP no. 727 of 2018.

It appears that in the meantime, the appellant-Bank also initiated the recovery under the SARFAESI Act, 2002 by issuing demand notice dated 27.04.2017 under section 13(2) of the SARFAESI Act. Since, the borrowers did not pay any heed to the said demand, therefore, the symbolic possession of the properties was taken by the Bank by issuing possession notice dated 13.03.2018 and 14.03.2018 under section 13(4) of the said Act. Thereafter, the properties were put to auction on 19.01.2021 by the Bank by issuing sale notice dated 14.12.2020.

It is averred that the respondent-borrowers challenged the demand notice, possession notice and sale notice before the Tribunal below by filing the Securitization Application under section 17 of the SARFAESI Act, which was registered as S.A. No. 01 of 2021.

It transpires that the borrowers filed an I.A. No. 376/2021 in the said S.A. stating therein that the Bank is attempting to sell the properties one after the other without permission of the Tribunal below, which was allowed by the Tribunal below vide order dated 29.11.2021 granting the status quo qua the properties in question. Thereafter, the Bank proceeded further before the Recovery Officer of the Tribunal below in R.P. 727/2018, against which the respondents-borrowers filed an objection alleging therein that since the Tribunal below has granted the status quo in respect of the property in question, therefore, the Recovery Officer should not proceed for sale of the properties in question. The Recovery Officer vide order dated 23.12.2021 disposed off the objection of the borrowers and ordered for issuance of notice for settling a sale proclamation, which was challenged by the borrowers by filing an I.A. No. 19 of 2022 in the pending T.S.A. No. 01 of 2021 stating therein that as both the proceedings are parallel to each other and the Recovery Officer has violated the order of status quo by directing the Bank to assist the Advocate Commissioner in taking steps for selling the properties in question and further prayed that the Recovery Officer be restrained from proceeding under the RDB Act as it would result in violation of order dated 29.11.2021 passed by the Tribunal below under the SARFAESI Act. The Tribunal below vide order impugned has allowed the I.A. No. 19/2022 in T.S.A no. 01 of 2021 directing the Recovery Officer, DRT Patna to keep the orders for issuance of notice for proclamation of sale in abeyance till status quo is in operation in the present matter. Being aggrieved by the said order, the present appeal has been filed by the appellant-Bank.

Learned counsel for the appellant submitted that the appellant-Bank had filed an O. A. No. 540/2018 for recovery of Rs. 27,34,52,720/- against the borrowers, which was decreed in toto vide judgment dated 10.10.2018. The learned counsel further submitted that the Bank subsequently initiated the proceedings under the SARFAESI Act, 2002, which was challenged by the borrowers by filing S.A. No. 01/2021 challenging the sale notice dated 14.12.2020, in which the status quo was granted vide order dated 29.11.2021 by the Tribunal below. It was further contended that in pursuance of the judgment and order passed by the Tribunal below in the O.A. of the appellant, the Recovery Certificate was issued, which was instituted as R.P. Case No. 727 of 2018, in which the objection was filed by the respondents stating therein that since there is already status quo order in respect of the property in question so the Recovery Officer may not proceed for deciding the objection of the respondents. It was further contended that despite the said objection, the Recovery Officer vide order dated 23.12.2021 disposed of the objection of the respondents and ordered for issuance of notice for proclamation of sale. Feeling aggrieved from the said order, an I.A. No. 19/2022 was filed in the pending S.A. 01/2021 before the Tribunal below alleging that both are parallel proceedings, but the Recovery Officer has violated the order of status and asked the Bank to assist the Advocate Commissioner for selling the properties in question. The said I.A. has been allowed vide order impugned directing the Recovery Officer to keep the orders for issuance of notice for proclamation of sale in abeyance till status quo is in operation. The learned counsel also submitted that the respondents challenged the order passed by the Recovery Officer in the pending S.A., whereas there was alternative remedy for the respondents by filing appeal under Section 30 of the RDB Act, 1993. It was also contended that the proceedings under the SARFAESI Act and the RDB Act are separate and distinct, therefore, both the proceedings cannot be clubbed together and the proceedings before the Recovery Officer cannot be stayed in the proceeding of the SARFAESI Act. It was thus contended that the order impugned passed by the Tribunal below is not sustainable in the eye of law. Therefore, it was prayed that the order impugned may be set aside and appeal may be allowed.

Learned counsel for the respondents no. 1 & 2 –borrowers submitted that both the proceedings i.e. RDDBFI Act and the SARFAESI Act are in the nature of enforcement proceeding for realizing the debt; therefore, the order of status quo against the Bank in respect of the same properties in enforcement proceeding under the SARFAESI Act means that the Bank should maintain the existing position and state of affairs in respect of the properties in question. It was further contended that the SARFAESI proceedings were earlier to the proceedings of the O.A. as it was filed on 22.05.2018 and possession notice was issued on 13.03.2018 and same notice was issued on 14.12.2020 scheduling the auction of the properties in question on 19.01.2021. It was further contended that the appellant-Bank was fully aware of the consequence of the status quo order that it could not sell the properties without permission of the Tribunal below, but in spite of it the appellant-Bank filed an application before the Recovery Officer for selling the properties in question, which was against the order of status quo granted by the Tribunal below. It was also contended that section 35 of the SARFAESI Act, which is a later enactment, has an overriding effect over any other law, thus the order passed under the SARFAESI Act, would be an order within jurisdiction and would prevail over the RDDBFI Act proceeding in respect of the said properties, as the dominant purpose of both the enactments is of enforcement of dues of the Bank, therefore, the Recovery Officer was duty bound to obey and act in terms of the order passed under the SARFAESI Act, but the Recovery Officer has disobeyed the order of status quo of the Tribunal below by directing the Advocate Commissioner to assist in taking steps for selling the properties, therefore, the Tribunal below has rightly set aside the order of the Recovery Officer vide order impugned. It was, therefore, prayed that the appeal filed by the appellant may be dismissed with heavy costs.

Having heard the learned counsels for the parties and considering the material available on record, undisputedly, the S.A. was filed by the borrowers before the Tribunal below under section 17 of the SARFAESI Act challenging the demand notice, possession notice and sale notice of the Bank and an O.A. No. 540/2018 was filed by the Bank under section 19 of the RDDBFI Act, 1993 for recovery of its dues, which was decreed vide judgment dated 10.10.2018 and the recovery certificate was issued and the recovery proceedings were instituted as RP case no. 727/2018 by the Recovery Officer, DRT Patna.

Admittedly, the appellant-bank filed an interim application before the Recovery Officer for proceeding to sell the properties in question, against which the respondents-borrowers filed an objection stating therein that there is status quo order of the Tribunal below in respect of the properties in question. The Recovery Officer of the Tribunal below vide order dated 23.12.2021 disposed off the objection filed by the borrowers and order for issuance of sale proclamation. The said order was challenged by the borrowers before the Tribunal below by filing and I. A. no. 19/2022 in its pending S.A. in spite of having alternative remedy. In this regard, section 30 of the RDB Act says as under:-

It is clear from the contents of the above section that any person aggrieved by an order of the recovery officer made under this Act may prefer an appeal before the Tribunal below, but in the present case, instead of filing the appeal under the said Act, the respondents-borrowers filed interim application before the Tribunal below in its pending S.A. filed under the SARFAESI Act. It is settled by the Hon’ble Apex Court that the Bank can proceed simultaneously in both the Acts i.e. RDDBFI Act and the SARFAESI Act, but both the proceedings cannot be clubbed together, as the proceedings under the SARFAESI Act and the RDDBFI Act are separate and distinct.

While going through the whole scenario of the case, I observe that the respondents-borrowers have filed the Interim Application against the order of the Recovery Officer in its pending S.A. under the SARFAESI Act in order to save themselves from depositing the amount of debt due because if the borrowers had filed an appeal under section 30 of the RDDBFI Act, 1993, then section 30-A would have come and they had to deposit 50% of the debt due as determined by the Tribunal below under section 19 of the said Act. Thus it is clear that the borrowers have filed the said application with very cleverly in its pending S.A. under the SARFAESI Act in spite of having alternative remedy u/s 30 of the RDDBFI Act. If any order is passed under the wrong Act, the same is considered to be null and void as well as without jurisdiction. In the present case, the application filed by the borrowers has been entertained by the Tribunal under the SARFAESI Act below knowingly that there was alternative remedy for the borrowers to file the appeal u/s 30 of the RDDBFI Act against the order of the Recovery Officer. Thus the order impugned passed by the Tribunal below is liable to be held without jurisdiction.

In view of the discussions as recorded above, the order impugned is set aside being without jurisdiction and the appeal filed by the appellant is allowed with no order as to costs.

A copy of this order be forwarded to the parties as well as the DRT concerned and be also uploaded on the e-DRT portal.