Prachi Exim India Ltd. and Others vs State Bank of India and Others

Navaniti Prasad Singh, J.—The petitioners had come to this Court before. Petitioners had challenged the action contemplated to be taken in terms of Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) by the respondent-State Bank of India.

During pendency, the petitioners having come to know that in spite of notice of the writ petition the respondent-Bank was trying to precipitate action, the matter was mentioned before this Court on the 11th of July, 2007 and taken up. This Court disposed of the said writ application being CWJC No. 6500 of 2007 on 11-7-2007 (Annexure-5) wherein the respondent Bank was directed to dispose of the petitioners representation filed on 18-4-2007, receipt whereof was denied by the respondent-Bank. The said representation along with receipt showing its despatch by registered post was annexed to the writ petition itself. The petitioners now complain that once an order was passed by this Court (Annexure-5) on the same very day, the authorities of the Bank sealed their office premises and other premises. They have filed the present writ application challenging the proceedings and the action. Mr. S.D. Sanjay, learned Counsel appearing for the Bank submits that as the Bank had received no representation dated 18-4-2007, the Bank was not obliged to dispose of the same. To the specific averments that the action was taken after the order of this Court restraining coercive action, he referred to the counter affidavit which is a bald denial. In course of hearing, the copy of inventory was produced which clearly shows that the premises in dispute was sealed between 12 noon to 4 p.m. on 11th July, 2007 that is the sealing started before orders were passed but concluded after orders were passed by this Court. These documents were not annexed to the counter affidavit. The alleged show cause which was filed by the petitioners and appended to the earlier writ petition itself along with postal receipt is, admittedly, yet to be disposed of on the plea that no such letter was received.

The question is what is the effect of the order of this Court on the actions taken by the respondents.

Under the Act, it is not that the Bank can proceed to take action against any debtor. The Bank has jurisdiction to proceed under the SARFAESI Act only when the debtor has defaulted in discharging his liability. The expression "default" has been defined by Section 2(j) of the Act. It means, inter alia, when the debt becomes "non-performing asset". What is "non-performing asset" is defined u/s 2(o) of the Act. That lays down that the object authorized to define non-performing asset. Having defined it so, in absence whereof the definition is to be guided by the guidelines provided by the Reserve Bank of India.

It is not in dispute that in accordance with the guidelines of the Reserve Bank of India, State Bank of India has circulated guidelines to its officials. A reference thereto would show that a non-performing asset would be a debt the interest whereof has not been serviced for a quarter after it was due. The respondent Bank asserts that one of the accounts of the petitioner became NAP on 31-12-2005 and, as such notice in terms of Section 13(2) of the Act issued on 8-2-2007. Petitioners state by annexing their show cause or representation dated 18-4-2007 along with postal receipt showing despatch by registered post. This is of significant importance as Section 13(3-A) of the Act mandate upon the Bank to respond to the said show cause/representation against action proposed before it gets the jurisdiction to enter any premises or take action in terms of Section 13(4) of the Act. Therefore, disposal of such a representation is an action which confers jurisdiction on the Bank.

Here, in the first writ proceedings, the petitioners had annexed that representation along with postal receipt showing despatch by registered post. Apart from a bald denial of having received it nothing further was said. Notwithstanding the same, this Court while disposing of the earlier writ directed the Bank to dispose of the same. Mr. Sanjay for the Bank submits that as the Bank had denied having received any such representation, it was not obliged to decide any such representation notwithstanding orders of this Court unless it was refilled. I regret my inability to appreciate the strange stand taken. The representation formed a part of the writ petition along with postal receipts. Even if it be accepted that the Bank in fact did not receive it, they did receive it as a part of the writ records which they cannot deny. They were, thus, in law and in fact obliged to dispose of the same before proceeding any further. I may also refer Section 27 of the General Clauses Act, 1897 which raises a presumption along with the relevant provision of the Evidence Act of a letter sent by registered post being validly served.

In my view, the presumption has not been repudiated. A bald denial is not a valid rebuttal of a presumption in law. Thus, it would be seen that the respondent Bank, without dealing with the objection/show cause/representation of the petitioner as was required by them to be done u/s 13(3-A) of the Act, proceeded to precipitate the action. The action of the Bank cannot be but held to be without jurisdiction. That being so, I am left with no option but to direct the Bank to unseal the premises and hand over the premises as it was sealed or taken possession of within one week from the date of production of a copy of this order. The short time is being fixed by this Court keeping in view that there were perishable agricultural commodities packed and sealed kept in those premises and the petitioners have made serious allegations about damage to them though those allegations are vehemently denied. The bona fides of the Bank would have been well appreciated if the Bank had taken a stand to dispose of the representation, a copy whereof was duly served on them along with either of the first or the second writ application but the Bank chose not to do so. In my view, the law is that however the absurd the representation may be the law requires it to be disposed of and it is required to be disposed of by a speaking order. That is the only safeguard that is available against otherwise arbitrary authority as has been conferred on the Bank. These safeguards have been brought about because of the general criticism of the provisions being arbitrary and also noticed by the Apex Court. These provisions were brought in as the sole safeguard to protect the citizens and, as such, the more drastic the power the more unscrupulous compliances thereof would be required by the Courts. This Court has held that the respondent Bank has failed to discharge its legal obligation in true spirit of the matter. Thus, the action is vitiated as the Bank lacks the jurisdiction to proceed in the matter. I order accordingly.

The writ application, thus, stands allowed with the aforesaid direction.