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Judgment
K.C. Sood, J.—We dispose of these two writ petitions by this common judgment, as they are based upon similar facts and raise common question of law.
The petitioners are the borrowers, having raised term loan/cash credit facility from the respondent--Punjab National Bank, from its branch at Damtal of District Kangra. The petitioners defaulted in the payment of the dues towards the respondent-bank and for this reason their accounts were classified as "non performing asset" in accordance with the guidelines of the Reserve Bank of India. A recall notice (annexure R1) was issued to the petitioners for the entire outstanding dues together with interest and other charges. By a letter dated November 7, 2003 (annexure R2), guarantee furnished by the petitioners was invoked and the petitioners were asked to pay the due amount with further interest at the agreed rate within 30 days of the receipt of the notice, failing which, the petitioners were put to notice, bank would take such legal steps as may be necessary at the risk and responsibility of the petitioners. The dues were not liquidated and the bank by notice dated December 22, 2003 (annexure P1), called upon the petitioners to pay an amount of Rs. 19,60,531 in CWP No. 120 of 2004 and Rs. 9,00,572.72 in CWP No. 121 of 2004 with further interest at the agreed rate in 60 days from the receipt of the notice. The petitioners were informed that if the due amount is not paid, the bank intends to exercise any or all of the powers provided u/s 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("Act" for short). The secured assets intended to be enforced by the bank were detailed in the notice.
Aggrieved, the petitioners are in these petitions, under Article 226 of the Constitution of India, praying that notice dated December 22, 2003 (annexure P1), be quashed and the bank be directed not to take over the secured assets of the petitioners and not to recover the alleged amount, detailed in the notices. It is further prayed that the respondent-bank be directed to consider the offer of one-time settlement for the clearance of the outstanding dues.
Case of the petitioners is that Section 13 of the Act is being invoked by the respondent-bank without giving them a proper hearing.
The provisions of the Act came to be considered by the apex court in Mardia Chemicals Ltd. Vs. Union of India (UOI) and Others Etc. Etc., Several issues were raised before the apex court including the constitutionality of Section 13 of the Act and adequacy and efficacious mechanism to consider and decide objections/disputes raised by a borrower against measures provided u/s 13 of the Act, particularly in view of the bar in approaching the civil court u/s 34 of the Act.
So far as the provisions of Section 13(2) of the Act is concerned, it was held to be in vires. Their Lordships observed that (page 416 of 120 Comp Cas) :
"... till the stage of making of the demand and notice u/s 13(2) of the Act, no hearing can be claimed for by the borrower. But looking to the stringent nature of measures to be taken without intervention of court with a bar to approach the court or any other forum at that stage, it becomes only reasonable that the secured creditor must bear in mind the say of the borrower before such a process of recovery is initiated. So as to demonstrate that the reply of the borrower to the notice u/s 13(2) of the Act has been considered applying mind to it..."
Their Lordships in para. 37 of the judgment observed (page 395 of 120 Comp Cas) :
"Next we come to the question as to whether it is on whims and fancies of the financial institutions to classify the assets as non-performing assets, as canvassed before us. We find it not to be so. As a matter of fact a policy has been laid down by the Reserve Bank of India providing guidelines in the matter for declaring an asset to be a non-performing asset known as ''RBI''s prudential norms on income recognition, asset classification and provisioning--pertaining to advances'' through a circular dated August 30, 2001. It is mentioned in the said circular as follows :
''1.1 In line with the international practices and as per the recommendations made by the Committee on the Financial System (Chairman Shri M. Narasimham), the Reserve Bank of India has introduced, in a phased manner, prudential norms for income recognition, asset classification and provisioning for the advances portfolio of the banks so as to move towards greater consistency and transparency in the published accounts''.
2.1 Non-performing Assets :
''2.1.1 An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A "non-performing asset" (NPA) was defined as a credit facility in respect of which the interest and/or instalment of principal has remained "past due" for a specified period of time. The specified period was reduced in a phased manner as under :...''."
Their Lordships, however, took a view that before taking action a notice of 60 days is required to be given and it is only thereafter that measures u/s 13(4) of the Act can be taken. Their Lordships observed (page 417 of 120 Comp Cas) :
". . . Under Sub-section (2) of Section 13 it is incumbent upon the secured creditor to serve 60 days'' notice before proceeding to take any of the measures as provided under Sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debt Recovery Tribunal u/s 17 of the Act, at that stage . . ."
In the present case, admittedly neither the borrowers-petitioners were given an opportunity of hearing nor to place any facts for consideration of the secured creditor. Thus, there is non-compliance with the provision of Section 13(2) of the Act.
In this view of the matter, we allow the petitions. Notice (annexure P1) in both the writ petitions is quashed. The respondent-bank, however, shall be at liberty to serve 60 days notice on the petitioners under Sub-section (2) of Section13 of the Act before proceeding to take any of the measures, as provided under Sub-section (4) of Section 13 of the Act. If after service of such notice, borrower raises any objection or places facts for consideration of the respondent-bank, such objections/facts shall be considered by the respondent-bank and if objections are rejected then such rejection shall be informed by reasons, which shall be communicated to the petitioners. Needless to say. As pointed out by the apex court, reasons so communicated shall only be for the purpose of the knowledge of the borrower without giving rise to any right to approach the Debt Recovery Tribunal u/s 17 of the Act, at that stage.
Mr. Bawa, learned senior advocate, during the course of hearing, informed us that the bank had entered into one-time settlement with the petitioners and the respondent-bank may be directed to act in accordance with such one-time settlement. There is no material on record to show that there was any one-time settlement in respect of the dues from the petitioners to the bank. Mr. Bawa, learned senior counsel did show us a photostat copy of a letter of the bank, addressed to Sukhpaul Singh (petitioner No. 2) in both the petitions. This communication merely says that the authorities have agreed to get the balance compromise before March 31, 2005, except the account of Hari Singh, which has to be regularised/ adjusted by September 30, 2005, under all circumstances. By no stretch this communication can be said to be one-time settlement between the petitioners and respondent-bank. However, we make it clear that filing of this writ petition shall not come in the way of the parties to enter into one-time settlement or compromise.
The writ petitions are disposed of in the above terms.
No costs.