V. Shanmugam vs Union Bank of India, Nungambakkam Branch

S.J. Mukhopadhaya, J.—The appellant has challenged order dated 19th Dec., 2007, passed by learned single Judge in W.P. No.

19445/07. By the said order, learned single Judge, while held that there is substantial compliance of provision u/s 13(3-A) of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest Act (hereinafter referred to as ''SARFAESI Act''), dismissed the writ

petition.

The main plea taken in the appeal, as argued by the learned senior counsel for the appellant, is that the respondent, Union Bank of India

(hereinafter referred to as the ''Bank''), having not taken any decision u/s 13(3-A) of the SARFAESI Act within one week, had no jurisdiction to

take steps u/s 13(4) of the said Act.

Though learned single Judge made detailed discussion with regard to the facts as was highlighted by the appellant, it is not necessary to discuss

all the facts, except the relevant ones as noticed hereunder.

The respondent-Bank had extended loan of Rs. 3 lakhs to M/s. Adworld, a partnership firm. The firm subsequently started a quarry business in

Andhra Pradesh under the name and style of ""Karvin Corporation"". The account of the said partnership firm was also opened with the respondent-

Bank. While accounts of both the firms were being operated with various financial facilities, the accounts were classified by the bank as ''NPA'' in

1996. On 1st Oct., 1997, the outstanding of M/s.Adworld was arrived at Rs. 20,35,000/=. On 31st March, 1998, a sum of Rs. 3,37,660/= was

repaid, but remaining amount remained due. According to the appellant, entire book balance of M/s.Adworld was remitted by effecting a total

payment of Rs. 17,85,000/= on 17th May, 1999 as full and final settlement of NP amount, but the respondent-bank, arbitarily adjusted a sum of

Rs. 5 lakhs towards penal interest and made wrong debit of Rs. 5 lakhs on the said account. In effect, the NPA account continued to exist.

The bank filed one O.A. No. 118/02 before Debts Recovery Tribunal (hereinafter referred to as ''DRT'') against the two firms, the partners and

guarantors for total sum of Rs. 1,03,86,178.78 inclusive of interest upto 8th March, 2002. It is alleged that certain property already sold were also

wrongly included as ''B'' Schedule property in the said application. The bank filed an application, I.A. No. 139/03 before DRT-I seeking to amend

O.A. No. 118/02 pertaining to wrong inclusion of ''B'' Schedule property, which was allowed on 10th March, 2005.

Further case of the appellant is that on 10th Nov., 2006, the borrower had a meeting with the Bank''s Asst. General Manager (Recovery) from

Mumbai and other executives at the Regional office at Broadway, Chennai. In the said meeting, an OTS offer was made by the borrower for Rs.

25 lakhs, but the AGM insisted for remittance of Rs. 30 lakhs towards OTS. Subsequently, when the bank issued notice u/s 13(2) with a demand

of Rs. 1,47,11,309.73 together with interest @ 17.75% on the NPA account of ""Karvin Corporation"" and similar notice for a sum of Rs.

36,06,202.94 together with interest @ 15.75% p.a. in respect of NPA account of Adworld, the appellant forwarded a letter to the bank on 27th

Jan., 2007, expressing willingness to pay Rs. 30 lakhs as OTS before 10th March, 2007 and requested the bank''s consent for the said offer. The

negotiation was going on pursuant to which the borrower arranged repayment of Rs. 5 lakhs and promised to pay the rest of the amount of Rs. 25

lakhs by 31st March, 2007, but in the meantime, without responding to the appellant''s letter dated 13th March, 2007, as the bank was to take

action u/s 13(4), the writ petition was preferred.

The main plea taken by the appellant, as referred to above, that the appellant having filed objection/representation u/s 13(3-A) of the Act

against notice issued u/s 13(2), the bank having failed to take and communicate decision within one week, no action could be taken by the bank

against the appellant u/s 13(4).

Learned Counsel appearing on behalf of the appellant submitted that the time frame of one week as prescribed u/s 13(3-A) being mandatory,

on the basis of subsequent decision it cannot be held to be substantial compliance of Section 13(3-A) and, thereby, learned single Judge failed to

notice the same. He placed reliance on a Division Bench decision of this Court in Industrial Development Bank of India Limited by Deputy General

Manager and The Authorised Officer Vs. Kamaldeep Synthetics Limited, , wherein the Court made the following observation:

The Proviso to Sub-section (3-A) of Section 13 of the SARFAESI Act makes it abundantly clear that the reasons so communicated or the

likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application

to the DRT u/s 17 or the Court of District Judge u/s 17-A of the Act. Thus, the basic object of Sub-section (3-A) of Section 13 of the

SARFAESI Act is to ensure the element of transparency and fair play in the implementation of the provisions of the SARFAESI Act. Learned

Counsel for the respondent is unable to demonstrate prejudice or loss that is likely to be caused to the respondent by reason of the possession

notice given to it, earlier to the communication of the reasons for non-acceptance of the objections raised by the borrower. In our opinion, at the

most, it would amount to a mere irregularity and having regard to the facts and circumstances of the case, we are satisfied that the appellant-bank

has substantially complied with the provisions of Section 13(3-A) of the SARFAESI Act.

It was submitted that the aforesaid decision cannot be relied upon in the present case as no substantial compliance was made by the respondent

bank, having not passed any order within one week from the date of receipt of objection.

Learned Counsel for the bank submitted that the aforesaid issue is not required to be determined in the present case. According to him, after

notice issued u/s 13(2), the appellant did not choose to prefer any representation nor filed any objection as required u/s 13(3-A). In absence of

such representation, for non-payment of the amount, after 60 days it was open to the bank to take steps u/s 13(4).

Counsel for the bank placed reliance on a Division Bench decision of this Court in Tamil Nadu Industrial Investment Corporation Ltd. v. Millenium

Business solutions Pvt. Limited and Anr. reported in 2005 (1) LW 58. In the said case, the Court held as follows:

In our considered opinion it is not proper for the Court to interfere in such matters relating to recovery of loans. Such matters are contractual in

nature and writ jurisdiction is not the proper remedy for this. A writ lies when there is an error of law apparent on the face of the record, or there is

violation of law. No writ lies merely for directing one time settlement or for directing re-scheduling of the loan or for fixing instalments in connection

with the loan. It is only the bank or the financial institution which granted the loan which can re-schedule it or fix one time settlement or grant

instalments. The Court has no right under Article 226 of the Constitution to direct grant of one time settlement or for re-scheduling of the loan, or

to fix instalments.

We have heard the parties, perused the impugned order and the records produced by the appellant.

It appears that notices u/s 13(2) were issued on 2nd Jan., 2007. After the said notice, the appellant, as borrower, made no representation nor

raised any objection as stipulated u/s 13(3-A) of the Act. A letter was merely issued on 27th Jan., 2007, whereby, giving reference to a meeting

held on 10th Nov., 2006, the borrower-appellant informed that they are now accepting the offer to settle the dues of both the firms at Rs. 30 lakhs

as one time settlement as agreed by the AGM (Recovery) Mumbai. Pursuant to the said letter, the correspondence continued between the bank

and the petitioner vide letters dated 29th Jan., 2007, 12th March, 2007, etc., but finally no such settlement was arrived at between the parties.

In the present case as we find that the appellant has not filed any objection/representation against the notice u/s 13(2) as required u/s 13(3-A) of

the Act, and, therefore, the question of deciding such representation/objection by the bank within one week does not arise. On completion of 60

days period, as per Section 13(2), it was open to the bank to proceed u/s 13(4).

In view of the aforesaid finding, we are not inclined to interfere with the order dated 19th Dec., 2007, passed by learned single Judge. In

absence of merit, the writ appeal is dismissed. Consequently, connected miscellaneous petition is also dismissed. But there shall be no order as to

costs.