Punjab National Bank vs Sonal Madan And Ors.

J.M. Malik, J

The facts of the above detailed case are these. Punjab National Bank, the appellant, sanctioned cash credit (hypothecation and book-debts) limit of Rs. 10 crores; and non-fund based inland letter of guarantee limit of Rs. 5 crores and working capital term loan of Rs. 1.50 crores which were availed by M/s. Skan Cables and Wires Pvt. Ltd., respondent No. 3, constituted by Smt. Sonal Madan and Shri Binay Madan, respondent Nos. 1 and 2 respectively through the period 23.4.2008 and 6.2.2009. The respondents created equitable mortgage of the following four properties:

A. An Industrial Plot No. 460, Phase-III, Udyog Vihar, Gurgaon, by M/s. M.M. Industries;

B. Plot No. 132, Phase-IV, Sector-56, Opposite Sector-57, Phase V and Near NIFTEM, Village Kundli, Tehsil and District Sonepat, Haryana, by M/s. Scan Cables Pvt. Ltd.;

C. Residential Plot No. 313, Sector 7, Opposite HUDA Market, Gurgaon, Haryana, by Ms. Sonal Madan; and

D. Industrial Plot No. 426-431, comprised in Khasra No. 371/44-49-39; 313/56, situated in Village Jhilmil Tahirpur, Gali No. 8, Friends Colony, Ilaqua Shahdara, Delhi-110032, by Shri Vijay Madan.

The accounts of the respondents/borrowers company were classified as non-performing asset on 29.6.2010. A demand notice under Section 13(2) of the SRFAESI Act calling upon the borrowers, guarantors and mortgagors to pay the entire outstanding dues of Rs. 1523.46 lacs within 60 days was issued.

As the needful was not done within 60 days, therefore, the appellant Bank took physical possession of the mortgaged properties shown at point A, B and C above. Respondent No. 1 filed SA before the DRT-III on 24.11.2010.

Vide the impugned order dated 21.2.2011 the learned DRT passed certain directions, the relevant extracts of which are reproduced as hereunder:

After measuring and knowing the intent of the four petitioners, this Tribunal has given the maximum fifteen months' time to such four petitioners to liquidate the remaining amount of rupees thirteen crores seventy-three lacs seventy-three thousand nine hundred thirty and forty six paisa together with the simple, reducing balance based interest at the rate often percent imposed upon the NPA figure from Thursday, July 1, 2010 till the full payment; the fifteen months' time shall run from this day. Out of such period, a moratorium has been given to the company after considering its present state of affairs till Thursday, June 30, 2011. If the petitioners receive during such period any amount from their customers, the amount shall be immediately deposited by such petitioners with the Bank. During such rest period, the petitioner may also sell those two properties to lessen their existing liability; in that case, the entire sale proceeds shall be deposited by such petitioners with the Bank. Then, the Authorised Officer of the Bank shall, within a period of forty eight hours from such deposit, deliver the original title documents to Shri Vijay Madan for the onward transmission of such documents to the purchasers. The first instalment shall commence to be cleared by the petitioners during the first week of July 2011; the mode as prescribed for the first instalment shall be equally followed and adopted and applied by the present petitioners in the cases of the other nine equal monthly instalments.

Till the full recovery, the present Authorised Officer of the Bank, who has, on Thursday, October 28, 2010, taken the actual, physical possession over the assets, shall remain symbolically and as the learned Receiver of this Tribunal over the assets standing serially as 'A' of the paragraph No. 4 of the Bank's affidavit; such Receiver has been granted the liberty to take further the actual, physical possession over the same asset fifteen days after the default if committed by the present four petitioners in depositing with the Bank the two consecutive monthly instalments. The Authorised Officer of the Bank has been prevented by this Tribunal from selling the assets including the asset released this day from the purpose of enabling the company to carry on its manufacturing business till such officer complies with Rule 6(2) of the said Rule in the case of the sale over the hypothecated stocks of copper and book-debts and Rule 8(5) and (6) of the above Rules in respect Of the immovable secured assets.

The Authorised Officer of the Bank is hereby being directed to restore the physical possession over the asset situated at industrial plot No. 460, Phase-IV, Udyog Vihar Gurgaon, Haryana to the petitioners within Thursday, February 24, 2011 and such officer shall, within the above period, hand over all the records related to the business that were lying on the date of possession and are lying in the premises situated at residential Plot No. 313, Sector No. 313, Sector 17-A, Opposite HUDA market Gurgaon Haryana to the petitioner No. 2 after obtaining from him the Certificate of Receipts. The same officer shall also deliver the silver ornaments lying in the above premises to the petitioner No. 1 after obtaining from her the same certificate. Such direction issued upon the Bank has been needed for enabling the petitioner No. 1, a lady to carry on the business in silver ornaments. The petitioner Nos. 1 and 2 have been permitted by this Tribunal to remain in the above property and under the receivership of the same Authorised Officer of the Bank till the full recovery, after such petitioners have liquidated, cleared the two instalments.

Aggrieved by the said order, the Bank has preferred this appeal.

I have heard the Counsel for the parties. The learned Counsel for the respondents vehemently argued that there is no evidence which may go to show that notices under Section 13(2) of the SRFAESI Act were served upon the respondents. It was also urged that the action taken by the Bank be declared to be bad in law. It was argued that the goods lying in the above said premises were not taken care of and that this was a clear-cut case of manipulation as many items shown in the photographs taken by the Bank are missing from the inventory prepared. It was prayed that a Local Commissioner be appointed. Accordingly, a Local Commissioner was appointed and the report filed by him is on the record. None of the Counsel raised any objection to the said report. The Counsel for the respondents admitted that the respondents had approached the Bank and had availed of the above said credit facilities. Creation of the mortgage with respect to the above said four properties is also not in dispute. It was alleged that disbursal of complete sanctioned amount was never made. Counsel for the respondents contended that the Bank concealed the fact that it had been deducting the interest amount, between Rs. 9 to 12 lakh, every month from May 2008 till May 2010 depending on the outstanding thereof. Again, no prior notice of possession was served upon the respondents,

The arguments urged by the learned Counsel for the respondents are devoid of merits. The appellant has placed on record a copy of the notice under Section 13(2) of the SRFAESI Act and postal receipts in proof of having served the abovesaid notices upon the respondents.

The Local Commissioner has visited the spot and has filed his report along with certain photographs and CD. An inventory prepared by him has also been placed on the record. No objection has been raised by the parties with regard to the same.

It is difficult to fathom as to how the learned trial Court directed the Bank to handover the possession of the two properties even though the respondents had not paid any amount towards the outstanding amount. However, the factum of respondents' depositing a sum of Rs. 1,03,00,000/- at the time of grant of stay order is not in dispute. As per the notice under Section 13(2) of the SRFAESI Act, the respondents were required to deposit Rs. 1523.46 lakh within 60 days from 29.6.2010. It cannot be said to be the compliance of the notice under Section 13(2) of the SRFAESI Act. As a matter of fact, the learned trial Court should not have ordered release of the properties unless and until the respondents had paid either the entire outstanding amount or part thereof equivalent to the price of the property or properties in dispute.

My learned predecessor Mr. Justice M.C. Jain, in case reference State Bank of India v. Shri Laxmi Narayan Mini Banquet Hall [Miscellaneous Appeal No. 42/ 2009 in S.A. No. 50/2007 (Chandigarh-1) decided on 3.7.2009], was pleased to pass the following order:

7.... The Impugned order itself shows that the S.A. is still pending. The crucial question for decision in the S.A. would be the crystallization of the outstanding amount to be recovered from the borrower keeping in view the contentions. Section 17(3) of the SRFAESI Act prescribes the procedure for decision of S.A. made to the DRT. Without addressing itself to the vital questions involved, the Tribunal below has passed the impugned order disposing of the I.A. 392/2008 made by the borrower and has directed for the restoration of possession of the secured asset to him. The order, in my opinion, is not sustainable.

So far as the decision of the Hon'ble Punjab and Haryana High Court relied upon by the learned Counsel for the respondent is concerned, it is to be noted that the said case was decided on 31.5.2006. It cannot hold the field for the reason that subsequent thereto on 15.4.2008, the Full Bench of the Hon'ble Madras High Court decided the case of Ms. Lakshmi Shankar Mills (P) Ltd. & Ors. v. Authorised Officer/Chief Manager, Indian Bank & Ors. etc., holding that the Tribunal below has no power to pass any interim mandatory order relating to restoration of possession or restoration of management before finalization of proceedings under Section 17. In a subsequent case of Sri Manicka Vinayagar Spinning Mills v. A uthorized Officer, State Bank of India and Others (decided on 29.9.2008), the Hon'ble Madras High Court referring to Ms Lakshmi Shankar Mill's case aforesaid, held that the restoration of possession by the DRT by way of interim order is not permissible. Now, this case travelled to the Hon'ble Hon'ble Supreme Court at the behest of Sri Manicka Vinayagar Spinning Mills in SLP (Civil) No. 46/2009. It is pertinent to note that on 16.1.2009 the Hon'ble Apex Court after hearing Counsel for the parties, dismissed the SLP filed by Sri Manicka Vinayagar Spinning Mills against the said order of the Hon'ble Madras High Court saying, "We do not find any ground to interfere with the impugned order". That means to say, the view of the Hon'ble Madras High Court that the possession of the secured asset cannot be restored by way of interim order by the DRT has been approved by the Hon'ble Supreme Court. There is nothing to indicate that Arun Kumar Arora's case cited by the learned Counsel for the respondent also travelled up to the Hon'ble Supreme Court and the Hon'ble Apex Court took some other view. This being the ground reality, the view of the Hon'ble Madras High Court which has met the approval of the Hon'ble Supreme Court would hold the field in preference to the Arun Kumar Arora's case relied upon by the learned Counsel for the respondent (borrower).

Similar view was taken in Ms. Lakshmi Shankar Mills (P) Ltd. & Ors., etc. v. Authorised Officer/Chief Manager, Indian Bank & Ors., etc., 1 (2011) BC 353 (FB): AIR 2008 Mad 181 (FB), wherein it was held:-

The question concerns the jurisdiction of the Debts Recovery Tribunal to pass any interim mandatory order relating to restoration of possession or restoration of management, pending the proceedings under Section 17 of the Securitization Act. In Mardia Chemicals case the Supreme Court has held that the proceedings under Section 17 are not appellate proceedings, it is an initial action, which is brought before the forum as prescribed under the Act raising grievances against the action or measures taken by one of the parties to the contract. It is a stage of initial proceedings like filing a suit in the Civil Court. Proceedings under Section 17 of the Act are in lieu of the civil suit which remedy is ordinarily available, but for the bar under Section 34 of the Securitization Act. Section 17(3) provides that if the Tribunal comes to the conclusion that any of the measures referred to in Sub-section (4) of Section 13 taken by the secured creditor are not in accordance with the provisions of the Act and the Rules made thereunder, it can declare such action as invalid and restore possession of the secured assets to the borrower or restore the management of the possession to the borrower, as the case may be. It is, thus, clear that once the possession of the secured asset is taken, there would be no occasion for the Tribunal to order redelivery of possession till final determination of the issue. In other words, it is only when the Tribunal comes to the conclusion that any of the measures referred to in Section 13(4) taken by the secured creditor are not in accordance with the provisions of the Act and the Rules made thereunder, then only the Tribunal can restore possession of such secured assets to the borrower. By virtue of Sub-section (7) of Section 17 of the Securitisation Act read with Section 19(12) of the Recovery of Debts Due to Banks and Financial Institutions Act the Tribunal undoubtedly possess ancillary power to pass interim orders subject to the conditions as it may deem fit and proper to impose, but it does not in any way override the special provisions contained in Section 17(3) of the Securitisation Act. The statutory scheme of the Securitisation Act is such that the borrower could take recourse to application under Section 17 only if one or other measure is taken by the secured creditor, and the Tribunal can restore the status quo ante only if it comes to the conclusion that any of the measures taken by the secured creditor is not in accordance with the provisions of the Act. The scheme cannot be bypassed by issuing a mandatory order for redelivery of the possession before conclusion of the proceedings under Section 17. We may mention that we are supported in our view by an unreported decision of the Division Bench of this Court in the case of Authorised Officer, Indian Bank v. The Debts Recovery Appellate Tribunal and Others (Writ Petition No. 46413 of 2006 decided on 7.12.2006) and a decision of the Karnataka High Court in Syndicate Bank v. Basalingappa, AIR 2007 Kar 125.

In case we accept the order passed by the learned trial Court, it will take years to realise the outstanding amount. The procedure suggested by the learned trial Court in the impugned order will entail a lot of time and the Bank will not be able to recover its dues in the near future. The object of enacting special Acts like SRFAESI Act is the speedy recovery of the dues of the Bank and financial institutions. If there is delay in recovering such dues, it will defeat the very purpose and object of the Act.

In the light of the above discussion, I am unable to countenance the findings recorded by the learned trial Court. The appeal is allowed and the impugned order dated 21.2.2011 passed by the learned trial Court is set aside. The amount already deposited shall stand adjusted. The respondents are granted two months' time to pay the entire amount, failing which the appellant Bank can proceed against the respondents as per law. Nothing will debar the respondents from approaching the learned DRT again in case they are able to deposit sufficient amount equivalent to one or two properties and praying for the release of the respective property or properties, as the case may be, in their favour. The respondents are also given liberty to bring before the DRT prospective buyers. In that case, the learned DRT shall, after hearing both respondents and the appellant Bank, make orders accepting or rejecting the offer and issuing suitable directions to the Bank. In case the respondents pay the outstanding amount within two months, the appellant Bank shall issue 'No Dues Certificate' and return the title deeds of the properties.

Copies of this order be furnished to the parties as per law and another copy be sent to the learned DRT.