State Bank Of India vs Soni Ispat Ltd. And Ors.

R.K. Gupta, J

Both the appeals are heard. Appeal No. R-53/13 is preferred by the secured creditor under Section 18 of the SARFAESI Act, 2002 challenging the order passed by the DRT on 30th January, 2013 in S.A. No. 189/12, by which the Tribunal has allowed the securitisation application filed by the respondent No. 1 and by passing the order impugned the Tribunal has held that there was no proper consortium in terms to Section 13(9) of the SARFAESI Act, 2002. The Tribunal also came to a conclusion that the notice of possession was given and the notice published to auction the property were bad in law. In the present case the Tribunal has adopted unique attitude for adjudicating the case. The Tribunal at the first instance has allowed the preliminary obligation and quashed the proceedings taken up by the consortium and also quashed the notice of auction as well as notice of possession and, thereafter, the Tribunal fixed the case for final argument by and also filing of rejoinder on 15th February, 2013.

In this regard, this is to be seen that when the Tribunal has quashed the action taken by the lead Bank i.e. appellant as well as the possession notice and the auction notice, then nothing remained to be adjudicated by the Tribunal. Yet, the Tribunal has fixed the case for final arguments by directing the appellant to file the rejoinder.

The relevant facts for the adjudication of the present case are that the appellant is a lead Bank and initiated the proceedings by taking recourse to Section 13(4) of the SARFAESI Act, 2002, firstly, by taking possession and then by putting the property to auction. The appellant being a lead Bank acted on behalf of the following Banks:

Admittedly, while initiating the proceedings the lead Bank has not taken into account the dues which were recoverable by the Bank of Baroda. The Bank of Baroda was having the dues to be recovered from the respondent No. 1 for a sum of Rs. 29.50 lacs.

The Tribunal was of the view that the Bank of Baroda was a consenting party to the joint finance forming part of the consortium and since its dues have not been included, therefore, the action 50 taken by the lead Bank is contrary to the mandate of Section 13(9) of the SARFAESI Act, 2002.

So far as the dues of the ICICI Bank, which were for a sum of Rs. 47.40 crores, are concerned, the lead Bank added the same towards the total dues, but the Tribunal set aside the same on the ground that since the possession was taken by the lead Bank before expiry of the period of 60 days from the date the ICICI Bank issued the notice under Section 13(2), therefore, the action as such was found to be contrary to the law.

So far as the claim of the Bank of Baroda, which was for a sum of Rs. 29.50, is concerned, there is no dispute that while sanctioning the loan in favour of the respondent No. 1, the Bank of Baroda obtained the "N.O.C." from the State Bank of India and, thereafter, the loan was sanctioned. The Bank of Baroda was removed from the consortium on 1st November, 2012. Against the same, the Bank of Baroda filed a writ petition before the Hon'ble High Court of Madhya Pradesh, Indore Bench, Indore, which was registered as Writ Petition No. 11867/2012. The Hon'ble High Court passed the order on 19th December, 2012, by which the order dated 1st November, 2012 was stayed by the Hon'ble High Court, by which the Bank of Baroda was removed from the consortium.

The question in the present case is whether there was a proper consortium in terms of Section 13(9) of the SARFAESI Act, 2002? For the purpose of convenience, Section 13(9) of the SARFAESI Act, 2002 is reproduced as under:

(9) In the case of financing of a financial asset by more than one secured creditor of joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to Sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors.

Sub-section (9) of Section 13 of the SARFAESI Act, 2002 provides that in case of joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to Sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors. The provisos appended to the same have no relevancy and explanation appended to Sub-section (9) of Section 13 of the SARFAESI Act, 2002 would be relevant. The explanation defines the "record date" which means the date agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding on such date and the "amount outstanding" is also defined, which means the same shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor. As highlighted in the earlier paragraphs, the total dues of the Bank of Baroda were of Rs. 29.50 crores and minus the dues of the Bank of Baroda, the dues of the other Financial Institutions were for a sum Rs. 242.77 crores.

The requirement of the proper formation of the consortium by virtue of Sub-section (9) of Section 13 of the SARFAESI Act, 2002 is 75% of the total dues on the record date. Thus, even assuming that the dues of the Bank of Baroda which were for a sum of Rs. 29.50 crores is said to be not included by the lead Bank, then the total dues for which the appellant acted comes to 89.16% which is higher to 75% for the purpose of constituting the valid consortium as per Sub-section (9) of Section 13 of the SARFAESI Act, 2002. The Tribunal has not taken into account this part of the situation that whether excluding the dues of the Bank of Baroda, still the dues of lead Bank and other members of the consortium would be above to 75% or not for the purpose of forming the proper consortium as per Section 13(9) of the Act, 2002. Under the circumstances, the reason given by the Tribunal that Bank of Baroda was wrongly excluded from the consortium members and its dues have not been taken into account by the lead Bank cannot be said to be a valid reason in the light of the discussions as aforesaid and, particularly, in the light of Section 13(9) of the SARFAESI Act, 2002, Under the circumstances, there was proper consortium which was constituted.

This is also to be ascertained that if the dues of the Bank of Baroda are to be included, then the total recoverable dues in respect of all Banks and Financial Institutions will come to near about Rs. 272.27 crores and if minus the dues of the Bank of Baroda, which were for a sum of Rs. 29.50 crores, then the total dues comes to 242.77 crores. Thus, the dues, for which the consortium was constituted by even removing the Bank of Baroda, were of more than 75% of the total recoverable dues. In the consortium the appellant was a lead Bank.

Learned Counsel for the respondent No. 1 submitted that in the present case there was no "record date" which was agreed upon by the secured creditors representing not less than three-fourth of the amount outstanding on such date.

In this regard, the minutes of the consortium dated 17th April, 2012 itself indicates that the record date for the purpose of ascertaining the dues was taken into account as "31st March, 2012". The record of the minutes dated 17th April, 2012 further states that all members of the consortium have agreed to share the recovery of the sale proceeds after appropriation of the dues of MPFC (1st charge holder) in the ratio of dues as on 31st March, 2012. The said minutes further states that the members of the consortium agreed that after getting consent from all the Banks for action under Section 13(4) of the SARFAESI Act, 2002, the Enforcement Agent will be appointed to assist in taking possession of the factory assets and sale thereof. Expenses in this regard will also be shared in the ratio of dues as on 31st March, 2012. The full treading of the minutes itself indicates that there was an agreement to share in the ratio of the recovery amount which was due on 31st March, 2012, which is the 'record date'.

Under the circumstances, the record date as per the explanation appended to Sub-section (9) of Section 13 of the SARFAESI Act, 2002 was there and there was a consciousness with reference to the said date by all the members of the consortium. Though in the meeting dated 17th April, 2012 the Bank of Baroda has not participated, but non-participation of the Bank of Baroda will not make any difference in relation of the formation of the proper consortium, because the dues of the other consortium members including the dues of the lead Bank were up to the extent of more than 75% of the total dues. Thus, the Tribunal was not justified in holding that there was no proper consortium constituted.

This is to be seen that so far as the removal of the Bank of Baroda from the consortium members w.e.f. 1st November, 2012 is concerned, the stay order was granted by the Hon'ble Court of Madhya Pradesh, Indore Bench, Indore on 19th December, 2012. In this regard, the Apex Court in Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association, Madras, AIR 1992 SC 1439, held that order staying operation of order under challenge and its effect is the existence of order under challenge is not wiped out. Proceedings that have been terminated by passing of order under challenge do not get restored. Under the circumstances, when the order dated 1st November, 2012 was stayed by the Hon'ble High Court of Madhya Pradesh Indore Bench, Indore by passing an order on 19th December, 2012 and when the meeting took place 17th April, 2012, then there was no defect in the said meeting of the consortium, even though the Bank of Baroda either was not called for to participate or has not participated in the said meeting.

With regard to this respect, the Tribunal held that the dues of ICICI Bank were for a sum of Rs. 47.40 crores. Though the notice was given by the ICICI Bank under Section 13(2) of the SARFAESI Act, 2002, but the lead Bank has taken the possession of the said property before expiry of 60 days. The dues of the ICICI Bank were included by the consortium, for which the ICICI Bank has already issued the notice under Section 13(2) of the SARFAESI Act, 2002 and the possession of the same was taken before expiry of 60 days by the lead Bank, that could not have been a ground to hold that there was improper consortium.

This is to be seen that the lead Bank was entitled to proceed afresh to take possession of the property and to proceed with the matter in case the dues are not paid, as the consortium was proper. The whole of the possession should not have been to the illegal, as other Banks have already issued the notice under Section 13(2) of the SARFAESI Act, 2002 and possession of the property was taken by the lead Bank before expiry of 60 days in relation to only ICICI Bank. It is not the case that the ICICI Bank has not issued any notice under Section 13(2) of the SARFAESI Act, 2002, but the notice was already issued by them. Once there was a valid possession in relation to all the members of the consortium and because of the possession of the property was taken before expiry of 60 days from the date of notice issued by the ICICI Bank i.e. one Bank, the possession with regard to the other members of the consortium and the lead Bank can not be held to be bad. This may only constitute an irregularity and not illegality.

The possession of the property since has been found valid for all members of the consortium other than ICICI Bank, therefore, the possession of the property shall remain with the lead Bank. The lead Bank may proceed afresh for issuance of the notice under Section 13(4) of the SARFAESI Act, 2002 for the ICICI Bank, if advised.

It is also contended that in the present case the lead Bank and the other members of the consortium have also undertaken task for the MPFC, though the MPFC has not given any notice under Section 13(2) of SARFAESI Act, 2002. It was contended that the possession notice and the auction were bad. In this regard, this could only be said that even assuming that the dues of the MPFC are reduced, the lead Bank could have acted. On this eventuality, if the dues of the MPFC are to be considered, as the dues of the MPFC were for a sum of Rs. 4.05 crores, then it comes to 1.67%. If the dues of the MPFC which comes to 1.67% are to be reduced, then the total dues will come to 87.49%, which is much more than 75%. Thus, I do not find any illegality into the same.

In view of the aforesaid, the present Appeal is allowed.

Counsel for the parties submitted that in the light of the judgment passed by this Tribunal as aforesaid, now the securitisation application, before the DRT itself stands disposed of. Keeping in view the said request, it is directed that the securitisation Application No. 189/12 stands disposed of. For the reasons stated hereinabove, the Appeal No. R-52/13 which has arisen out of the order passed by the Tribunal on 30th January, 2013 in S.A. No. 191/12 pending before the DRT stands allowed and the securitisation application pending before the Tribunal i.e. 191/12 also stands disposed of in view of the request made the Counsel for the parties.