Kumar Enterprises vs Arci Ltd.

S.N.H. Zaidi, J

This appeal impugns the order dated 27th September, 2012 of D.R.T.-III, Delhi passed in S.A. No. 528/2012 titled as Kumar Enterprises v. Asset Reconstruction Company (India) Ltd., whereby the interim relief sought in the S.A. has been rejected. The circumstances of the case indicate that respondent No. 2 Bank had sanctioned an overdraft facility of Rs. 19 lacs to the appellants which was renewed for Rs. 10 lacs as overdraft and Rs. 9 lacs as demand loan. The facility was later enhanced and renewed as Cash Credit (Hypothecation) for Rs. 44 lacs in October, 2000 on mortgage of property bearing No. 1/641, Loni Road, Shahdara, Delhi by deposit of its original sale deed. As the loan account became out of order, the respondent No. 2 Bank classified it as Non-Performing Asset (N.P.A.) on 31st March, 2002 and filed O.A. No. 198/2002 before the D.R.T.-III for the recovery of Rs. 54,54,604.48 along with pendente lite and future interest. The D.R.T. directed the applicant Bank to maintain the status quo of the mortgaged property by order dated 25th April, 2013 and allowed to continue the order with the condition that the defendants would also not transfer or part with the possession of that property in any manner whatsoever, by order dated 30th May, 2003.

During the pendency of the O.A. the Bank also issued demand notice dated 31st January, 2003 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act) to the borrower/appellants claiming an amount of Rs. 57,51,365.48 within 60 days but the borrowers failed to pay the claimed amount. The Bank assigned the debt in question to respondent No. 1 Company, namely the Asset Reconstruction Company India Ltd. (A.R.C.I.L.), vide assignment deed dated 23rd June, 2008 A.R.C.I.L. approached the C.M.M. Delhi under Section 14 of the SARFAESI Act for obtaining the possession of the mortgaged property and the A.C.M.M., Delhi, vide order dated 14th September, 2012, appointed a Court Receiver for taking the physical possession of that property. The borrower/appellants thereafter filed S.A. No. 528/2012 before the Tribunal below challenging the actions of A.R.C.I.L. and also sought interim relief qua the possession intended to be taken by the Receiver. The Tribunal below, however, declined to grant the interim relief by the order impugned dated 27th September, 2012. The respondent No. 1 took over physical possession of the property in question through the Court Receiver. Feeling aggrieved with the order of the Tribunal below, the appellants have filed the instant appeal claiming the restoration of possession of the property in question as interim as well as final relief.

Mr. M. Dutta, the learned Counsel appearing for the appellants, has mainly urged that the account of the appellants could not have been classified as N.P.A., in view of the then prevailing prudential norms/guidelines issued by the Reserve Bank of India (R.B.I.) qua the asset classification and all the measures taken by it pursuant to that classification is bad in law. According to him proper classification of the account as N.P.A. is the very basis for the invocation of the provisions of SARFAESI Act as no demand notice under Section 13(2) of the Act can be issued unless the account is classified as N.P.A. and unless the demand notice is issued, the secured creditor cannot take any measure for the enforcement of its security interest under Section 13(4) of the Act. He has submitted that, as per the R.B.I. guidelines for the Year 2001-2012, the account in respect of the overdraft/cash credit facility could be classified as N.P.A. only if it had remained 'out of order' for a period of 180 days or more and the definition of 'out of order' provides that an account would be treated as 'out of order' if the balance remains continuously in excess of the sanctioned limit/drawing power. He has further contended that the statement of account (Annexure A-4) would show that the account was within the sanctioned limit of Rs. 44 lacs up to 21st September, 2001 and since on 3rd October, 2001 the Bank had sanctioned a temporary overdraft limit (ad hoc limit) of 10% of the sanctioned limit of Rs. 44 lacs, i.e., Rs. 4.4 lacs, for a period of 90 days to the appellant firm, the overall sanctioned limit had enhanced to Rs. 48.4 lacs which was to expire on 1st January, 2002, as such the account could not have been declared as N.P.A. on 31st March, 2002 as the required 180 days had not expired on that date. Mr. Dutta has also submitted that the said statement of account would also show that the balance in the account had remained within the limit of Rs. 48.4 lacs up to 31st December, 2001 and thereafter it had exceeded the sanctioned limit.

Ms. Rungta, however, opposing the above contentions has submitted that the account in question was rightly classified as N.P.A. on 31st March, 2002, as it had remained out of order for more than 180 days on that date. She has further stressed that the Bank had never sanctioned any ad hoc limit of Rs. 4.4 lacs on 3rd October, 2001 as alleged by the appellants and this fact has specifically been denied in para. 5.9 (at page 199) of the reply to the appeal. She has also contended that after 22nd September, 2001, the balance in the account had always remained in excess of the sanctioned limit of Rs. 44 lacs and if on any day it had come down to less than Rs. 44 lacs due to deposits of amounts, it has again exceeded the limit on the very day on account of the withdrawal of amounts.

I have given my considered thoughts to the submissions of the parties' Counsel qua the question of the classification of account as N.P.A. and perused the recorded. In my view mere averment of the appellants that on 3rd October, 2001 the respondent Bank had sanctioned an ad hoc limit of Rs. 4.4 fees is not sufficient to accept that fact, as respondent No. 1 has very categorically denied it in its reply and the appellants have not filed any sanction letter of ad hoc limit in support of this contention. A perusal of the statement of account (Annexure A-4) shows that on 3rd October, 2001 an amount of Rs. 8 lacs was deposited in the account, due to which the debit balance had come down to Rs. 37,68,418.48 from Rs. 45,68,418.48 as it stood on 1st October, 2001 but since on that very day the aforesaid amount of Rs. 8 lacs was withdrawn in three parts, therefore, at the closing on 3rd October, 2001 the debit balance had again gone up to Rs. 45,68,418.48. The contention of the appellants in para 5.9 of the rejoinder does not appear to have any force that if no ad hoc facility was sanctioned, then it was beyond any explanation as to why and how the balance had exceeded the sanctioned limit, because in an overdraft/cash credit facility the balance in the account often exceeds the sanctioned limit but if it continues to remains in excess of the said limit for more than the permitted period, then the account can be classified as N.P.A. The next contention of the appellants has also no legs to stand that since up to 31st December, 2001 the balance had remained within Rs. 48.40 lacs, as was enhanced with the sanction of the ad hoc limit, therefore, this circumstance establishes the grant/sanctioning of ad hoc limit, as the statement of account (Annexure A-4) shows that the balance had often exceeded Rs. 48.40 lacs limit during the period between 3rd October, 2001 and 1st January, 2002. I am, therefore, of the considered view that the fact qua the alleged sanctioning of ad hoc limit is not established from the record.

In view of above, it is to be seen now whether or not the balance in the account had remained out of order or in excess of the sanctioned limit of Rs. 44 lacs within 180 days prior to 31st March, 2002 the date of N.P.A. A perusal of the statement of account (Annexure A-4) shows that the balance had remained in excess of the said limit since 22nd September, 2001 up to the date of N.P.A. and if on any day the balance had come down to less than Rs. 44 lacs, it had again exceeded the said limit at the close of that day. The account in question is, therefore, held to have been duly classified as N.P.A., in accordance with the then prevailing guidelines of the R.B.I., and the order impugned is not liable to be interfered with on this count.

Though the appellants Counsel has not argued qua this ground yet since it has been contended in the appeal that the appellants had sent a response dated 7th April, 2003 to the demand notice dated 31st January, 2003 issued under Section 13(2) of the SARFAESI Act but the respondent Bank, despite its receipt, did not send any communication about its non-acceptance in compliance of the mandatory requirement of Section 13(3A) of the SARFAESI Act and had acted in contravention of the said provision, it is being taken up for consideration. A perusal of paras 5.22 and 5.23 of the appeal memo would, however, show that the appellants had only demanded certain documents/information in their response dated 7th April, 2003 and had not made any representation or raised any objection qua the claim of the Bank. In this regard I am in full agreement with the view of the learned Tribunal below that since Sub-section (3 A) was inserted in Section 13 of the SARFAESI Act by Act No. 30 of 2004, which came into force with effect from 11th November, 2004, i.e., more than a year after sending the response on 7th April, 2003, therefore, it was not obligatory for the secured creditor under the then law to communicate to the borrower the reasons for the non-acceptance of the representation/objection as the application of the said provisions was prospective and not retrospective. Thus, if the respondent Bank had not given any reply to the response dated 7th April, 2003 of the appellants or failed to furnish the required document/information, it cannot be said to have acted against the provisions of law.

In view of the discussion made above, I am of the view that the appellants have failed to show any prima facie case for the interim relief as sought by them and the Tribunal below has committed no error in refusing to grant the same, because it is not in dispute that the appellants had defaulted in repayment of the loan amount and owed a huge sum of more than Rs. 57 lacs to respondent No. 1 as such the secured creditor could not have been restrained from proceeding against the secured asset in accordance with law. Since the physical possession of the property in question has already been taken over by respondent No. 1, the same cannot be allowed to be restored to the appellants during the pendency of the S.A. Consequently, this appeal fails and is accordingly dismissed without any order as to cost. It is, however, clarified that the Tribunal below shall not be influenced while disposing of the S.A. by any opinion expressed by this Tribunal in this order, which has been made only for the purposes of disposal of this appeal. As the S.A. is pending since 24th September, 2012 the Tribunal below is directed to make endeavour for its expeditious disposal, if possible, within three months from the date a copy this order is placed before it.

Copy of this order be furnished to the parties as per law and be also sent to the D.R.T. concerned.