Dr. Joseph K. Masih vs LIC Housing Finance Ltd. & Another

The Appellant had filed an application under Sec. 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SRFAESI Act) to challenge the action of the Respondent LIC Housing Finance Ltd. (FI) in initiating measures under Sec. 13(4) of the Act. Prayer by the Appellant was to quash notices dated 14th December, 2010 and 10lh March, 2004.

In this case, the Appellant had availed a personal loan of Rs. 2.90 lacs in the year 1996. The Appellant claims to have repaid an amount of Rs. 2.26 lacs between 1996 and 2002 and another sum of Rs. 1 lac in lump sum in March 2004.

The Respondent FI had filed a Suit for recovery of Rs. 4,23,894/- alongwith interest. This Suit came to be dismissed and even the application seeking restoration thereof filed by the FI was also dismissed.

The Respondent FI thereafter initiated action under the SRFAESI Act by issuing notice dated 10th March, 2004 under Sec. 13(12) of the Act. The Appellant would describe this as a mode to pressurise and harass the Appellant. In between, talks for settlement were also held and as per the Appellant, Mr. K.K. Malhotra of Matrix Consulting Group, an authorised recovery agency of the Respondent FI offered to settle the case for Rs. 4 lacs. The authorised recovery agency again approached the Appellant with a request to make payment in cash while returning the cheque as it was the close of the financial year. As per the Appellant, he then had made a payment of Rs. 1 lac in cash. The grievance of the Appellant is that this amount was not credited into his account and cheques were also not collected from the authorised agent.

While informing the Respondent about the same, the Appellant filed reply to the notice issued under Sec. 13(2) of the Act as well on 28th April, 2004. The Appellant even got a notice about the dishonour of the cheque, when the Appellant filed a counter complaint against the recovery agent etc. The Appellant, in the meantime, received a notice on 3rd November, 2005 from the Respondent for taking possession of his house. The Appellant then served a legal notice. As already noticed, the Suit filed by the Respondent FI came to be dismissed. The Civil Court then stayed the operation of the notice dated 10th March, 2004, but, still, the Respondent FI published a sale notice on 16th June, 2007 fixing the sale on 24th July, 2007.

Under these circumstances, the Appellant filed a Suit for permanent injunction against the sale of his house. The Appellant had also filed writ petition before the High Court on 20th July, 2007. This writ petition, however, was dismissed on 8th May, 2008 with direction to the Trial Court at Kharar to decide the injunction application of the Appellant. The Trial Court at Kharar dismissed the injunction application on 23rd May, 2008 against which the Appellant filed an Appeal before Additional District Judge, Ropar, when the order passed by the Kharar Court was stayed. This Appeal was ultimately dismissed on 25th August, 2010. The Appellant appears to have remained unsuccessful in the revision which was disposed off by the High Court.

The Appellant then received another letter from Respondent FI on 14th December, 2010 to take possession of his house on 5th January, 2011. This order was again challenged by the Appellant before High Court by filing a writ petition and the High Court had relegated the Appellant before the Debts Recovery Tribunal. In this background the Appellant filed S.A. on 27th January, 2011.

The sole plea pressed before me to challenge the order passed by the Tribunal below dismissing the S.A. is that the LIC Housing Finance Ltd. was declared as Financial Institution vide Notification dated 10lh November, 2003 whereas the loan account was declared NPA in August 1998. The Appellant appearing in person thus would contend that the action of the Respondent FI in proceeding against him under the SRFAESI Act would be without jurisdiction. Though the Appellant has raised challenge in his S.A. on number of other grounds before the Tribunal below, but has pressed this one ground alone before me. The Tribunal has rejected this contention by observing that there was no substance in the said contention. As per the Tribunal, notice under Sec. 13(2) of the SRFAESI Act was issued on 10th March, 2004 whereas the notification declaring LIC Housing Finance Ltd as Financial Institution was issued on 10th November, 2003. It is accordingly observed that the said FI was competent to initiate action under the SRFAESI Act.

The Appellant would contend that the Respondent FI would be competent to take action under the SRFAESI Act only if it was a FI on the date when the account was declared as NPA and this notification issued on 10th November, 2003 declaring the Respondent LIC Housing Finance Ltd. to be an FI under the Act cannot be allowed to have retrospective effect.

The Appellant in this regard has referred to the case of Marripati Nagaraja v. Government of Andhra Pradesh, 2007 (11) S.C.C. 522 : 2007 (12) J.T. 407. The Hon'ble Supreme Court was dealing with a case where Andhra Pradesh Public Service Commission had issued a notification dated Is' October, 1992 inviting applications for recruitment to various posts. In this notification, reservation for women was made to the extent of 30% but no such stipulation was made in respect of the vacancies in the category of Assistant Director of Agriculture. The issue before the Court was regarding the question of reservation for women in the said category. While dealing with the issue, the Hon hie Supreme Court has observed that the State, in exercise of its power conferred upon it under the proviso appended to Article 309 of the Constitution of India is entitled to make rules with retrospective effect and retro-active operation. It is then observed that ordinarily in absence of rules that too a rule which was expressly given a retropsective effect, the rules prevailing as on the date of the notification are to be applied. The Appellant has relied upon this observation to urge that the position which was on the date when the account was declared NPA would apply and not when the notification was issued declaring the LIC Housing Finance Ltd as Financial Institution.

In my view, this judgment has no applicability to the fact-situation in the present case. The Hon'ble Supreme Court was dealing with the rules made under Article 309 of the Constitution of India whereas the issue in the present case relates to a notification which was issued under the Act to declare the LIC Housing Finance Ltd. as Financial Institution under the SRFAESI Act. The term `Financial Institution' has been defined in Sec. 2(m) of the SRFAESI Act to mean a public Financial Institution within the meaning of Sec. 4-A of the Companies Act, 1956 and any institution specified by the Central Government under sub-clause (ii) of clause (h) of Sec. 2 of the RDDBFI Act 1993. Financial Institution is defined to include other institution or non-Banking financial Company as defined in clause (f) of Sec. 45-1 of the Reserve Bank of India Act 1934 or which the Central Government may by notification may specify as Financial Institution for the purpose of this Act. The term is defined as under as per Sec. 2(m) of the SRFAESI Act.

"(m) "Financial Institution" means

(i) a public Financial Institution within the meaning of Sec. 4-A of the Companies Act, 1956 (1 of 1956);

(ii) any institution specified by the Central Government under sub-clause (ii) of clause (h) of Sec. 2 of the RDDBFI Act, 1993 (51 of 1993);

(iii) the International Finance Corporation established under the international Finance Corporation (Status, Immunities and Privileges) Act, 1958 (42 of 1958);

(iv) any other institution or Non-Banking Financial Company as defined in clause (f) of Sec. 45-1 of the Reserve Bank of India Act, 1934 (2 of 1934) which the Central Government may, by notification specify as Financial Institution for the purposes of this Act."

The term `Financial Institution' is also defined under Sec. 2 (h) of the RDDBFI Act as under :

"(h) "Financial Institution" means

(i) a public Financial Institution within the meaning of Sec. 4A of the Companies Act, 1956 (1 of 1956);

(ia) the Securitisation Company or Reconstruction Company which has obtained a certificate of registration under sub-section (4) of Sec. 3 of the SRFAESI Act, 2002 (54 of 2002)

(ii) such other institution as the Central Government may, having regard to its business activity and the area of its operation in India by notification, specify,"

The reading of the provision thus would clearly show that the action under the SRFAESI Act can be initiated by the Banks as well as the Financial Institutions. Any such institution which is notified by Central Government having regard to its business activity to be `Financial Institution' can thus competently initiate proceedings under the RDDBFI Act and the SRFAESI Act. The LIC Housing Finance Ltd. may not have been a `Financial Institution', but once the Government has issued such notification declaring it to be a Financial Institution, it will be Financial Institution competent to invoke the provisions of the SRFAESI Act. No question of any retrospective operation of any rule as is construed by the Appellant would arise in this case. It is only a declaration in the form of a notification that LIC Housing Finance Ltd. is declared or has become a Financial Institution which would be entitled to invoke the provisions of the RDDBFI and SRFAESI Acts from the date it was declared as Financial Institution. The Respondent FI had initiated action under the SRFAESI Act, once it was declared as Financial Institution. The power to initiate action under the RDDBFI Act or under the SRFAESI Act would have no correlation with the filing of the Suit or declaring the account as NPA.

Reference here can be made to Sec. 31 of the RDDBFI Act, which regulates transfer of pending cases, would further show that the provisions of the RDDBFI Act and the SRFAESI Act would be available to any institution which is declared as Financial Institution or any other Bank etc. which is empowered to initiate action by invoking the provisions in these statute. Section 31 regulates transfer of pending cases. As per this section, every Suit or other proceeding pending before any Court immediately before the date of establishment of a Tribunal under this Act, being a Suit or proceeding, the cause of action whereon it is based is such that it would have been, if it had arisen after such establishment, within the jurisdiction of such Tribunal, shall stand transferred on that date to such Tribunal. Even if the Civil Suit filed by the Respondent FI had not been dismissed, the same was required to be transferred to the Recovery Tribunal in terms of Sec. 31 of the RDDBFI Act.

The RDDBFI Act, as well as the SRFAESI Act, has also created a bar of jurisdiction of the Civil Court to try such cases which would fall within the purview of the proceeding under the RDDBFI Act or SRFAESI Act. In this regard, reference can be made to Sec. 18 of the RDDBFI Act and Sec. 34 of the SRFAESI Act, which are as under :

"18. Bar of Jurisdiction. - On and from the appointed day, no Court or other authority shall have, or be entitled to exercise, any jurisdiction , power on authority (except the Supreme Court, and a High Court exercising jurisdiction under Articles 226 and 227 of the Constitution) in relation to the matters specified in Sec. 17.

Provided that any proceeding relation to the recovery of debts due to any Multi-State Co-operative Bank pending before the date of commencement of the; Enforcement of Security Interest and/Recovery of Debts Laws (Amendment) Act, 2012 under the Multi-State Co-operative Societies Act, 2002 (39 of 2002) shall be continued and nothing contained in this section shall, after such commencement, apply to such proceedings."

"34. Civil Court not to have jurisdiction. - No Civil Court shall have jurisdiction to entertain any Suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any Court or other authority in respect of any action taken or to be taken in pursuance of any powers conferred by or under this Act or under the RDDBFI Act, 1993 (51 of 1993)."

Reading of Sec. 18 above would show that on and from the appointed day, no Court or other authority shall have, or be entitled to exercise any jurisdiction, power or authority in relation to matters specified under Sec. 17 of the RDDBFI Act. Thus the Civil Court or any other authority would lack in jurisdiction and power to deal with matters specified in these Acts with effect from the appointed day. As per Sec. 34, no Civil Court will have jurisdiction to entertain any Suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine.

The affect of these provisions would be that from the day on which the LIC Housing Finance Ltd. was notified as Financial Institution under this Act, the jurisdiction of the Civil Court to deal with the issue of recovery would stand barred and the Civil Court was left with no jurisdiction to entertain any Suit or proceedings. Even the pending Suit or proceeding, whatever these may be, was required to be transferred to the Tribunals under the Act. In this background, the only course left open to the Respondent FI to proceed was under the provisions of these Acts.

Even a pendency of the Suit in a Civil Court would not have been bar for the Respondent FI to initiate action under the SRFAESI Act w.e.f. 10th November, 2003 and the Respondent FI was competent to initiate action and there was no bar for taking or initiating action under the both the enactments simultaneously.

This issue has been considered by this Tribunal in Appeal No. 196/2011 - India bulls Housing Finance Ltd. v. Surendra Kumar Khedwal, decided on 4th March, 2014. Relevant findings as under :

"As per the Counsel for the Appellant, the Tribunal has set aside the notice only two grounds. Firstly, the Tribunal has held the Respondent/Appellant was not a Financial Institution on the date it disbursed the loan and hence not entitled to recover the dues under the SRFAESI Act because the notification declaring the Appellant as a Financial Institution came only in the year 2007, whereas, the loan was disbursed in the year 2006. Secondly, it is held by the Tribunal that the notice under Sec. 13 (2) of the SRFAESI Act issued to Respondents did not contain the details of the due amount and hence the said notice was in violation of the mandator, 'requirement laid down in sub-section (3) of Sec. 13 of the Act.

The Counsel for the Appellant has taken me through the impugned order. The perusal of the impugned order would show that the question whether the Appellant having been declared as Financial Institution in the year 2007, which was much after the disbursement of the loan amount in the year 2006, would be entitled to take advantage of the provisions of the SRFAESI Act has been considered and decided on the basis of some judgments cited before the Tribunal below. The Respondents herein had relied upon the Division Bench judgment of Orissa High Court titled Subhash Chandra Panda v. Sate of Orissa, A.I.R. 2008 O.R.I. 88in support of his submission. On the other hand Counsel for the Appellant had placed reliance upon two judgments in the case of Unique Engineering Works v. Union of India (UOI), II (2004) BC 241 and Pradeep Kumar Gupta v. State of U.P., A.I.R. 2010 All. 113 where a contrary view has been expressed which supports the Appellant's submission.

The view expressed in Subhash Chandra Panda's case has been preferred by the Tribunal below over the views expressed by the Allahabad High Court in Pradeep Gupta's case and by Uttaranchal High Court in Unique Engineering Works' cases (supra).

The Counsel for the Appellant would point out that Pradeep Gupta's case (supra) has dealt with Appellant Financial Institution itself and it is held therein that even if the loan was advanced prior to the date of notification, the Financial Institution concerned would be entitled to recover the amount under the provisions of the SRFAESI Act. Similar is the view expressed in the Unique Engineering Works' case (supra) where it has been held that the provisions of the SRFAESI Act are having retrospective effect. Against this, the Division Bench of the Orissa High Court in the case of Subhah Chandra Panda (supra) has taken a contrary view and has held that in order to invoke the provisions of Sec. 13 of the SRFAESI Act, the institution entering into agreement must be a Financial Institution within the meaning of Sec. 2(m)(iv) of the SRFAESI Act, on the date of alleged agreement. It is therefore held that the loan sanctioned by it cannot be recovered under the said Act, it being not a Financial Institution.

There may not be any need to further examine if the Tribunal below has rightly relied on Subhash Chandra Panda case (supra) because the said judgment of the Division Bench has been overruled by the Full Bench of the Court in Sarthak Builders Pvt. Ltd. v. Orissa Rural Development Corporation Limited, W.P. (C) No. 9518 of 2005, decided on 14th February, 2014. Thus the view expressed in Subhah Chandra Panda case can no more be taken as good or correct law. Once the judgment which has been held to be carrying more persuasive value has itself been set aside and overruled by a larger Bench of the same High Court, then the persuasive value of the judgment or the view expressed therein would not be available for any use. The submission by the learned Counsel for the Respondent is that on the date this order was passed, Subhash Chanda Panda's case was a good law and so was rightly relied by the Tribunal seems to be an argument of convenience. It is to be noticed that this precedent in the Subhash Chandra Panda's case was not having any binding force on the Tribunal below. That is why the Tribunal has very consciously used the words that ratio laid down in Subhash Chandra Panda's case is more persuasive than the other judgments where a contrary view was expressed. Once this view, which had persuaded the Tribunal below to decide a case in a particular manner, is overruled, the order passed on the basis of that judgment possibly cannot be sustained. It would not be legally appropriate to permit a judgment to remain which is decided on the basis of judgment which is overruled. This would need correction at this stage at least. A view of the Full Bench decision in Sarthak Builders' case (supra) must be allowed to prevail."

It may also be relevant to refer to the case of United Bank of India Calcutta v. Abhjit Tea Co. Pvt. Ltd., (2000) 7 S.C.C. 357

The Hon'ble Supreme Court in this case has considered the combined effect of Secs. 18 and 31 of the RDDBFI Act on pending proceedings. Considering the provisions of Sec. 18 of the RDDBFI Act, it is observed that bar of the said section applies and, in fact, Sec. 34 of the Act gives overriding effect to the provisions of this Act. In this regard, the Court has further held that it is well-settled now that it is the duty of the Court, whether it is trying original proceedings or hearing an Appeal to take notice of the change of law effecting pending action and to give effect to the same. It is further observed that if, while a Suit is pending, a law like the RDDBFI Act, 1993 that the Civil Court shall not decide the Suit, is passed, the Civil Court is bound to take judicial notice of the statute and hold that the Suit-even after its remand-cannot be disposed off by it. In this regard, the Hon'ble Supreme Court has gone on to observe that in some statute the Legislature no doubt says that no Suit shall be `entertained' or `instituted' in regard to a particular subject-matter. It is held that such a law will not affect pending actions and the law is only prospective. This position, however, would be different if the law states that after its commencement no Suit shall be "disposed off' or "no decree shall be passed" or "no Court shall exercise powers or jurisdiction." As held by the Supreme Court, in this class of cases, the Act applies even to pending proceedings and the Civil Courts have to take judicial notice of the same.

A Constitution Bench in the case of Shah Bhojraj Kuverji Oil Mills & Ginning Factory v. Subhash Chandra Yograj Sinha, A.I.R. 1961 S.C. 1590, had considered a situation where law is made ousting the jurisdiction of Civil Court where a Suit was pending. The words used in the statute were `a landlord shall not be entitled to the recovery of possession of any premises ' These words were contained in the Bombay Rent, Hotel and Lodging House Rates Control Act, 1957. On this basis, it was held that the provision barring a decree to be passed applied to pending Suits and applied at the time the decree was to be passed. Another Constitution Bench in Mst. Rafiquennessa v. Lal Bahadur Chetri, A.I.R. 1964 S.C. 1511, has held that the prohibition against passing a decree for possession would apply even at the appellate stage, unless of course, Appeals were kept outside the impact of the new Act, as in the proviso to Sec. 31 of the Act. It can thus be said that even Appellate Court has to apply the law ousting its jurisdiction. Reference can also be made to Allahabad Bank v. Canara Bank, J.T. 2000 (4) S.C. 411, where this principle has been applied. It is clear that the provision in Sec. 31 must be construed in such a manner that, after the Act, no Suit by the Bank is decided by the Civil Court and all such Suits are required to be decided by the Tribunal.

In view of the detailed discussion above, the Respondent FI certainly was competent to initiate proceedings under the SRFAESI Act. There is thus no merit in the Appeal. The same is accordingly dismissed.