State Bank Of Patiala vs Haryana State Industrial And Infrastructure Development Corpn. Ltd.

S.N.H. Zaidi, J

This appeal impugns the order dated 2.12.2011 of DRT-I Chandigarh whereby S.A. No. 103/2011 has been disposed of with the direction to the parties to approach the conciliator or the arbitrator as per Section 11 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (for short, the SARFAESI Act) for determination of the dispute under the Arbitration and Conciliation Act, 1996. The facts giving rise to this appeal, in brief, are that various credit facilities were extended by the appellant Bank to a company, namely, M/s. Super Fibres Ltd., but when the borrower company defaulted in the repayment of the loan amount, its accounts were declared as NPA and a demand notice was accordingly issued to it and the Bank took actual physical possession of the secured assets on 14.10.2010. When the appellant Bank issued notice dated 20.5.2011 for the sale of the secured assets, the respondent Corporation filed an application under Section 17 of the SARFAESI Act (S.A. No. 103/2011) for stay of the sale of immovable properties as well as for restraining the Bank from taking any coercive step for the recovery of its dues with the averments that the Bank has filed O.A. No. 286/2009 under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 for the recovery of Rs. 15,79,28,051/- which is pending adjudication before the Tribunal below wherein the applicant Haryana State Industrial and Infrastructure Development Corporation Limited (HSIIDC) has been impleaded as proforma defendant No. 5; that the applicant HSIIDC has pari passu charge on the land and building of the borrower company as it had sanctioned nine different loans with a total disbursed amount of Rs. 2261.09 lacs out of which four loans were fully repaid but still an amount of Rs. 932.99 lacs qua the remaining five loans was outstanding and the Bank had given consent letters for the joint pari passu charge of the applicant over the land and building of the borrower company in respect of all those loans and the charge was also registered with the Registrar of Companies; that the Bank had wrongly shown the movable and immovable properties of the company under its exclusive charge and it cannot sell the immovable properties without associating the applicant in the sale process.

The respondent Bank denied the alleged claim of pari passu charge of the applicant as false and fabricated and averred that the Bank had sought the expert opinion qua the alleged consent letters from the Department of Forensic Sciences, Punjabi University, Patiala which had given its preliminary report and relying upon that report the Bank had requested the applicant HSIIDC to provide the original documents (consent letters) to the Professor of the said department. It was also averred that despite assurances the applicant did not send the original documents, as such the allegation qua the pari passu charge over the securities was wrong and false.

The learned Tribunal below, after hearing the parties, came to the conclusion that the controversy between them falls within the purview of Section 11 of the SARFAESI Act which provides that where any dispute for non-payment of any amount due arises amongst the Bank or financial institutions or securitization company or reconstruction company or qualified institutional buyer, such disputes shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996 and the S.A. was disposed of by the order impugned with the direction to the parties to accordingly approach the conciliator or the arbitrator for determination of their dispute. Feeling aggrieved with that order, the respondent Bank has filed the instant appeal.

The respondent HSIIDC has also not supported the order impugned and has stated in its reply that the Tribunal below has erroneously disposed of the S.A. with the aforesaid direction. It has been pointed out by it that being aggrieved with the order impugned, it has also filed an appeal for setting it aside. According to it, the provision of Section 11 of the SARFAESI Act does not apply in the instant case as the respondent is not a financial institution.

I have heard Mr. Narinder Pal, the learned Counsel for the appellant and Mr. Gautam Awasthi, the learned Counsel for the respondent and perused the record.

This appeal is against such an order with which none of the parties to it is satisfied and both of them have filed the appeals assailing the same. The appellant Bank, while opposing the SA, had not taken the plea that the S.A. was hit by Section 11 of the SARFAESI Act and the learned Tribunal below has, in its own wisdom, found that the S.A. falls within the purview of Section 11 of the said Act. The said Section reads thus:

11 Resolution of disputes--Where any dispute relating to securitisation or reconstruction or non-payment of any amount due including interest arises amongst any of the parties, namely, the Bank, or financial institution, or securitisation company or reconstruction company or qualified institutional buyer such dispute shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996 (26 of 1996), as if the parties to the dispute have consented in writing for determination of such dispute by conciliation or arbitration and the provisions of that Act shall apply accordingly.

According to the above provision, dispute qua the non-payment of the amount due should have arisen amongst the Bank or financial institution or securitisation or reconstruction company or qualified institutional buyer. In the instant matter the dispute is between the appellant Bank on the one side and the respondent HSIIDC on the other. The respondent in its reply to the appeal has very categorically said that it is neither a financial institution nor any of the companies referred to in the said section or the qualified institutional buyer, but a State Financial Corporation. A State Financial Corporation is not included within the definition of "financial institution" given in Clause (m) of Sub-section (1) of Section 2 of the SARFAESI Act. There is also nothing on record which could show that the respondent is a financial institution. The learned Tribunal below has though said that the dispute is between a Bank and a financial institution, but it has not explained as to how the respondent HSIIDC is a financial institution in terms of its definition in Section 2(1)(m) of the Act. I am, therefore, of the considered view that in the light of the aforesaid circumstances, the provisions of Section 11 of the SARFAESI Act are not attracted to the instant case, as such the order impugned cannot be allowed to sustain.

Consequently, this appeal succeeds and the order impugned is set aside. The matter is remanded back to the Tribunal below for disposal of the S.A. on merit in accordance with law, within three months from the date a copy of this order is placed before it. Parties to appear before the Tribunal below on 9.12.2013.

Copy of this order be furnished to the parties as per law and be also sent to the Tribunal below.