Devis Ispat Limited and Another vs State Bank of India and Another

Joymalya Bagchi, J.—This appeal has been preferred against the judgment and order dated 19th March, 2013 whereby the learned Single Judge has dismissed the writ petition on the ground that alternative statutory remedy of the appellants lay in making representation u/s 13(3A) of The Securitisation And Reconstruction of Financial Assets And Enforcement of Security Interest Act, 2002 (hereinafter referred to as "SARFAESI Act") in enabling them to make representations against the impugned notice issued u/s 13(2) of the said Act and granted the appellant company liberty to urge all issues raised before the appropriate authority. The facts giving rise to this appeal are as follows:--

The appellant company was enjoying credit facilities from the respondent bank with overall limit of Rupees 29,50,00,000 (Rupees Twenty Nine Crores and Fifty Lakhs) comprising of the following facilities:

Periodically the said facilities were enhanced to Rs. 68,50,00,000/-(Rupees Sixty Eight Crores and Fifty Lakhs) in the following manner:

The appellants made an application for farther enhancement of the limit of such facilities to 93,00,00,000/- (Rupees Ninety Three Crores), but the same was not sanctioned by the appropriate authority.

In the meantime, the respondent bank by letter dated 10.01.2013 informed the appellants that its Cash Credit account was irregular as the outstanding limit therein was Rs. 11,71,52,559.66 against permissible overdrawal limit of Rs. 5,60,00,000/- and that there was no service of interest in the Cash Credit. FCNB (DL) and SLC accounts. The appellants were advised to regularise the accounts within 14.01.2013, failing which the accounts would become non performing asset (NPA).

The appellants replied to the aforesaid letter on 14.01.2013.

In response to such representation, the respondent bank again issued another letter on 14.01.2013 calling upon them to regularise its accounts, failing which they would be declared NPA. Finally, by letter dated 18.01.2013, respondent bank intimated the appellants that their account has been classified as NPA on 16.01.2013 and were requested to regularize the same within 7 days, failing which the bank would be constrained to take appropriate steps to safeguard its interest including the legal action. They were also intimated that the bank was unable to enhance their credit facilities as per the extant RBI guidelines pending regularization of the account.

The appellants responded to such notice by a reply dated 22.01.2013 wherein it was, inter alia, pointed out that the Cash Credit account had been operated on 19th October, 2012 and therefore the said facilities was declared NPA on 16th January, 2013 i.e. on 90th day instead of waiting for completion of 90 days in violation of the guidelines issued by the Reserve Bank of India in that regard. It was also alleged that there was violation of Clause 2.1.3 of the said guidelines of Reserve Bank of India.

Subsequently, on 28.01.2013 the authorised officer of the respondent bank issued notice u/s 13(2) of SARFAESI Act upon the appellant company.

Under such circumstances, the appellants approached this Court, inter alia, praying for setting aside the impugned letters dated 10.01.2013, 14.01.2013, 18.01.2012 and 28.01.2013, as aforesaid. Prayer was also made for a direction to continue Inland Letter of Credit of Rs. 1,00,00,000/- in favour of West Bengal State Electricity Distribution Company Limited.

The learned Single Judge has rejected such prayer on the ground of existence of alternate statutory remedy by way of representation u/s 13(3A) of the SARFAESI Act, 2002 to the respondent bank. Hence, the appellants preferred this intra-court appeal.

Mr. Khare, learned senior counsel appearing for the appellants argued that the bank had acted in an wholly arbitrary, capricious and unreasonable manner. While on the other hand, the respondent bank was actively considering the prayer for enhancement of Credit facilities, on the other hand, it issued notices threatening that the Credit facilities of the appellant company would be declared non performing asset (NPA).

He submitted that the classification of the Credit facilities as non-performing asset was in violation of the guidelines of the Reserve Bank of India which are mandatory in nature. It was submitted by Mr. Khare that such fact being a jurisdictional one, the learned Single Judge ought to be considered the same instead of relegating the issue for consideration by the respondent bank.

He drew our attention to the definition non performing asset in 2.1 of the Master Circular--prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to advances issued by RBI dated 2nd July, 2012, particularly to Clause 2.1.3 thereof, wherein it has been stated that bank should classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.

In support of his contention, he relied on various decisions.

Mr. Moitra, learned senior counsel appearing for the respondent bank submitted that representation was made by the appellant company u/s 13(3A) of the SARFAESI Act and the same was duly considered by the authorized officer of the respondent bank and all the issues therein including their objection relating to classification of account as NPA had been effectively dealt with in its letter dated 02.04.2013 and such letter has already been communicated to the appellants.

He submitted a copy of the said letter in the course of hearing and the same has been kept with the record. He therefore, submitted that the appellants having availed of the alternative statutory remedy there was no scope for interference with the Impugned order.

Nonetheless, he further submitted that the order of the learned Single Judge did not suffering from any illegality whatsoever.

In reply, learned senior counsel for the appellants submitted that notwithstanding they malting representation in terms of section 13(3A), as aforesaid, before the respondent bank, it was necessary for the Court to examine as to whether the initiation of the proceeding u/s 13(2) of the said Act was valid in law, particularly, in view of the allegation that the classification of accounts was done contrary to the mandatory guidelines issued by Reserve Bank of India.

We have heard the submissions of both the parties. The contention of the appellant is that its Credit facilities were classified as non performing asset in violation of the guidelines of the Reserve Bank of India. In this regard, the appellants have referred to Clause 2.1.3 of the Master Circulars dated 2nd July, 2012 which reads as follows:--

2.1.3 Bank should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.

They have also assailed that the declaration of the Cash Credit facilities as NPA on 16.01.2013 was made on the 90th day bearing in mind that the last drawal on the Cash Credit facilities was 19th October, 2012, instead of completion of 90 days as required under Clause 4 of the said Master Circular.

In Mardia Chemicals Ltd. Vs. Union of India (UOI) and Others Etc. Etc., at paragraph 44 it has been held as follows:

As a matter of fact, the Narasimham Committee also advocates for a legal framework which may clearly define the rights and liabilities of the parties to the contract and provisions for speedy resolution of disputes, which is a sine qua non for efficient trade and commerce, especially for financial intermediation. Even the guidelines of the Reserve Bank of India in relation to classifying the NPA''s while stressing the need of expeditious steps in taking a decision for classifying and identification of NPA''s says, a system be evolved which should ensure that the doubts in asset classification are settled through specified internal channels within the time specified in the guidelines. It is thus clear that while recommending speedier steps for recovery of the debts it is envisaged by all concerned that within the legal framework, such provisions may be contained which may curtail the delays. Nonetheless dues or disputes regarding classification of NPAs should be considered and resolved by some internal mechanism. In our view, the above position suggests the safeguards for a borrower, before a secured asset is classified as NPA. If there is any difficulty or any objection pointed out by the borrower by means of some appropriate internal mechanism it must be expeditiously resolved.

(emphasis supplied)

From the aforesaid ratio, it is clear that in the event there is any difficulty or objection pointed by a borrower with regard to classification, there must be an appropriate internal mechanism in the bank to resolve the same. Pursuant to such ratio, SARFAESI Act was amended and Section 13(3A) was incorporated therein to enable the borrower to make representation or raise objection before the respondent bank with regard to its decision to declare appropriate any account of the borrower as nonperforming asset. On such representation being made, the respondent bank has to come to a decision that such objection is untenable and communicated the reasons for such conclusion to the borrower within one week of receipt of such representation/objection.

Section 13(3A) of SARFAESI Act, 2002, reads as follows:

(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:

Provided 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 Debts Recovery Tribunal u/s 17 or the Court of District Judge u/s 17A.

Incorporation of such statutory mechanism empowering the borrower to make a representation is an effective statutory mechanism and provides an adequate and effective statutory mechanism to expeditiously resolve any difficulty or objection raised by the borrower relating to classification of its securities or otherwise.

Moreover, the issues relating to the validity of the decision of declaring an account as non performing asset essentially relates to disputed questions of fact and accounting and the same has been rightly left to be adjudicated in the first instance by the respondent bank through the aforesaid statutory mechanism. To usurp such statutory jurisdiction of the secured creditor by invoking the writ jurisdiction is neither permissible on advisable in law.

It appears that during pendency of the appeal the appellants have already resorted to such alternative statutory remedy and the bank by its letter dated 28.01.2013 has dealt with their various objections including one relating to classification of their accounts as NPA. Such reasons have also been duly communicated to the appellants.

In Sardar Associates and Others Vs. Punjab and Sind Bank and Others, the bank had acted in derogation for legal rights arising under a one time settlement scheme and hence a writ petition was held to be maintainable. No such scheme has been pointed out by the appellants to exist in relation to the instant case.

In Union of India (UOI) and Others Vs. Tantia Construction Pvt. Ltd., it was held existence of arbitration clause could not bar invocation of writ jurisdiction to interfere with the patently arbitrary action of the State dehors the terms of contract. In the instant case, the appellants have already invoked the alternate statutory remedy and therefore the question of interfering with the impugned order does not arise.

In Corporation Bank Vs. D.S. Gowda and Another, the issue was whether the nationalized bank charging interest at a rate fixed in terms of the Reserve Bank of India directives was unjust. The judgment has no manner of application in the facts of the instant case.

In Signal Apparels Pvt. Ltd. rep. by its Director and Signal Export rep. by its Partner v. Canara Bank rep. by its Signal Apparels Pvt. Ltd. and Signal Export Vs. Canara Bank and Reserve Bank of India, the Madras High Court refused to interfere with the action of the respondent bank although the respondent proposed to fully settle the accounts. In the instant case, the appellants declined to take steps to regularise their Credit facilities, which was admittedly irregular inspite of repeated suggestions to that effect during the hearing of this appeal.

In Sheeba Philominal Merlin and Esther Evelyan Vs. The Repatriates Co-op Finance and Development Bank Ltd. (Govt of India Enterprise), The General Manager, Repco Bank, The Authorized Officer, Repco Bank and S. Sasikumar, the Madras High Court had interfered with a notice u/s 13(2) inasmuch as the said notice was not in terms of the statute. No such invalidity in the notice has been pointed out in the instant case.

In Indumati Pattanaik Vs. Chief Manager and Authorised Officer, Bank of India, Bhubaneswar Branch, a Division Bench of Orissa High Court had interfered with a demand notice as the same was without jurisdiction and barred by time. Such judgement has no manner of application to the facts of the instant case.

In Amar Nath Banerjee Vs. Central Bank of India and Another, action of issuing possession notice was interfered with inasmuch as the representation u/s 13(3A) was not disposed of. In the instant case, the representation has not only been disposed of but the same has also been communicated to the appellants.

In an unreported decision of Andhra High Court in M/s. Sravan Dall Mill P. Ltd. v. Central Bank of India in W.P. No. 18089 of 2006 delivered on 11.09.2009, the authority had approached the Court being aggrieved by a cryptic unreasoned response to their objection to classification of their accounts as NPA. In the instant case, the writ petition was filed even prior to making representation u/s 13(3A) of the SARFAESI Act to the respondent bank. During pendency of the appeal such representation was made and dealt with elaborately by the respondent bank by passing a speaking order which was communicated vide its letter dated 28.01.2013 to the appellants. The internal adjudicatory mechanism as envisaged in Mardia Chemical (Supra) to deal with objections raised by a borrower with regard to the demand notice including classification of its accounts as NPA appears to have been effectively complied with in the instant case.

For the aforesaid reasons, we do not find any merit in the instant appeal. The appeal along with connected applications are dismissed.

Arun Mishra, C.J.

I agree.